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Global Markets Research
ANCHOR REPORT
Asia Pacific hospitals: Technology investments to drive growth
Hospitals investing in technology will 14 June 2018

Research analysts
benefit from rising revenue intensity
Healthcare/Pharmaceutical
Raghavendra Divekar, CFA - NSC
As the population in Asia ages and disease profiles shift towards raghavendra.divekar@nomura.com
managing chronic conditions, we see the next generation of hospitals +81 3 6703 1229
being built around technology. These hospitals will focus on doing more Japan pharmaceuticals &
revenue-intensive surgeries, with monitoring and care moving closer to healthcare
patients’ homes. Kyoichiro Shigemura - NSC
kyoichiro.shigemura@nomura.com
Asian countries remain behind the curve in managing this change and can +81 3 6703 1118
learn from Japan’s comprehensive regional care systems and the
adoption of information and communications technology (ICT), which has BDO Unibank, Inc. and BDO Nomura
allowed for more efficient delivery of healthcare. Securities, Inc are the distributors of this
report in the Philippines. No part of this
material may be (i) copied, photocopied, or
Key themes and analysis in this Anchor Report include: duplicated in any form, by any means; or (ii)
redistributed without the prior written
 The use of new medical technology and services is the biggest driver consent of BDO Unibank, Inc. and BDO
Nomura Securities. Inc. Nomura has
of healthcare costs. authorized BDO Unibank, Inc. and BDO
Nomura Securities. Inc to re-distribute this
 Technologies such as telemedicine and robotic surgery can help report in the Philippines.
hospitals build strong brands and attract new revenue-intensive
patients. The "BDO-NS" (which stands for "BDO Nomura
Securities, Inc.") placed next to an analyst’s name
 Companies which have made proactive investments in healthcare on the front page of a research report indicates that
the analyst is employed by BDO Unibank Inc. ("BDO
Unibank") who has been seconded to BDO-NS, to
technology will benefit from higher growth in revenue intensity. We provide research assistance services to NSL under
upgrade IHH Healthcare (IHH MK) to Buy. an agreement between BDO Unibank, NSL and
BDO-NS. BDO-NS is a Philippines securities dealer,
which is a joint venture between BDO Unibank and
the Nomura Group.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Asia Pacific hospitals
EQUITY: HEALTH CARE & PHARMACEUTICALS
Technology investments to drive growth Global Markets Research

14 June 2018
Hospitals making proactive technology investments
will benefit from rising revenue intensity Anchor themes
Next generation of hospitals to be built around technology As disease profile shifts towards
an increase in chronic conditions
As the population in the region ages and disease profiles shift towards chronic
amid an ageing population, we
conditions, we believe technology will play a critical role in the next stage of see an increase in the role of
hospital evolution. Built around technology, the next generation of hospitals will technology in the next phase of
be focused on complex revenue-intensive surgeries with most of the patient the evolution of hospitals.
diagnosis, monitoring and care moving closer to the patient’s home. Increasing
dependence on the use of technology will also drive healthcare inflation by Nomura vs consensus
improving medical outcomes and allowing for the treatment of previously We prefer hospital operators who
have made proactive investments
untreatable conditions.
in technology leading to faster
AEJ behind the curve but bright spots exist in Singapore and Thailand growth in revenue intensity.
Asia remains behind the curve in managing this change as it increasingly
grapples with a shift in disease profile and an ageing society. Within Asia, Research analysts
Japan leads the way through the increased adoption of information and Healthcare/Pharmaceutical
communications technology (ICT) in its healthcare system. IHH Healthcare in Raghavendra Divekar, CFA - NSC
Singapore and BDMS in Thailand, which are major hubs for medical travellers, raghavendra.divekar@nomura.com
are also increasingly looking at integrating technology into their daily +81 3 6703 1229
operations in order to attract patients and increase their revenue intensity. Japan pharmaceuticals & healthcare
Key technologies to focus on in managing this next phase of evolution
Kyoichiro Shigemura - NSC
In this report, we look at some of the technologies that can help hospitals in kyoichiro.shigemura@nomura.com
the region manage change effectively. Some of these technologies – including +81 3 6703 1118
telemedicine, remote patient monitoring, wearable devices, robotic surgery Thailand Healthcare & Pharmaceuticals
and 3D printing – are focused on improving patient care and can help hospital
Thanatcha Jurukul - CNS, Thailand
operators differentiate themselves from peers, attract newer patients including thanatcha.jurukul.1@nomura.com
medical travellers and increase their revenue intensity. Additional +662 287 6799
technological applications – including remote ICUs, hybrid operating rooms,
India Pharmaceuticals
bed management tools, intensive outpatient care programs, urgent care
centres and robotic assistants – can help increase efficiency, shift monitoring Saion Mukherjee - NFASL
saion.mukherjee@nomura.com
to outpatient facilities, provide new revenue streams and optimise operations. +91 22 4037 4184
Lessons from the evolution of Japanese healthcare systems
China Health Care & Pharmaceuticals
Japan's healthcare system and infrastructure have made great strides while
adapting to the shift to a super-aged society. Comprehensive regional care Stella Xing, CFA - NIHK
stella.xing@nomura.com
systems and the adoption of ICT in healthcare has allowed for more efficient +852 2252 6134
delivery of healthcare despite a reduction in the number of hospitals. Going
forward, we see the rise of new healthcare markets based on four themes: 1) Philippines Consumer related
telemedicine; 2) greater use of AI; 3) robot-assisted treatment; and 4) service Dante Tinga Jr - BDO-NS
platforms. +632 878 4969
Fig. 1: Stocks for action Indonesia Consumer Related

Company Ticker Rating LC Mcap Target Price Upside/ Deidy Wijaya, CFA - PTNSI
(LC, mn) price (11th Jun) downside deidy.wijaya@nomura.com
(LC/sh) (LC/sh) (%) +62 21 2991 3345
IHH Healthcare IHH MK BUY MYR 50,198 7.10 6.09 17%
Bangkok Dusit BDMS TB BUY THB 391,875 31.00 25.25 23% The "BDO-NS" (which stands for "BDO Nomura
Securities, Inc.") placed next to an analyst’s name
Cyberdyne 7779 JP BUY JPY 185,145 3,300 1,348 145% on the front page of a research report indicates that
the analyst is employed by BDO Unibank Inc. ("BDO
Ship Healthcare 3360 JP BUY JPY 214,522 4,900 4,220 16% Unibank") who has been seconded to BDO-NS, to
provide research assistance services to NSL under
Source: Bloomberg, Nomura research. Note: ↑ -- upgrading rating/TP; LC – local currency. an agreement between BDO Unibank, NSL and
BDO-NS. BDO-NS is a Philippines securities dealer,
which is a joint venture between BDO Unibank and
the Nomura Group.
Nomura | Asia Pacific hospitals 14 June 2018
Contents
The evolution of hospitals .......................................................................3

Next-generation hospitals – built round technology.................................5
Technology to drive healthcare inflation ..................................................7
Technologies for improving patient care ...............................................11
Technologies to improve operations .....................................................27
Lessons from the evolution of the Japanese healthcare system ...........43
#1: Telemedicine ..................................................................................47
# 2: AI – diagnosis support, drug discovery support, behaviour prediction
.............................................................................................................49
#3: Robots x healthcare ........................................................................54
#4: Healthcare x ICT platforms – medical care, long-term care,
preventive care, presymptomatic improvement .....................................59
Singapore – increasingly integrating technology into healthcare ...........64
Malaysia – rising adoption of technology ..............................................68
Thailand – technological improvements to attract medical travellers .....71
India – use of technology will be crucial to efficient delivery of healthcare
.............................................................................................................74
China – key trends include telemedicine and robotic surgery ...............76
Philippines – robotic surgery to prosper ................................................78
Indonesia – investment impacted by UHC ............................................79
IHH Healthcare Bhd..............................................................................80
Bangkok Dusit Medical Services......................................................... 100
Raffles Medical ................................................................................... 104
Cyberdyne .......................................................................................... 106
Ship Healthcare Holdings ................................................................... 109
M3 ...................................................................................................... 112
Secom ................................................................................................ 115
Appendix A-1 ...................................................................................... 121
2
The evolution of hospitals

Since the time they first came into existence, hospitals have continuously evolved due to
social and cultural changes. These factors have included changing disease profiles,
scientific and technological advancements and the needs of the patient population. The
first institutions aiming to provide cures for the sick were temples in Egypt and Greece,
dedicated to deities associated with healing. While the Greeks were the first to develop
rational systems of medicines, they did not have hospitals, with physicians instead
treating patients at their homes. In fact, the first documented evidence of institutions
especially dedicated to the cure of the sick comes from Sri Lanka in the fourth century
BCE. The first teaching hospital, with physicians from all parts of the world, was founded
in present day Iran in 300 CE.
In the middle ages, most of the hospitals were operated by religious institutions
In the middle ages in Europe, religious institutions continued to provide most of the
healthcare services for the poor in large, open wards, while physicians continued to treat
the nobility at their homes. The concept of hospital wards was first seen in Roman
military hospitals from 100 CE, which had small patients rooms believed to hold three
beds. Over time, hospital wards continued to expand, housing multiple patients and
became the standard for the public hospitals. As these wards became larger, often
having over 100 beds with multiple patients in a bed, unsanitary conditions, poor
ventilation and infections became a growing concern. This resulted in a high mortality
rate with the hospitals started to be increasingly associated with the poor and death.
1800s – changing the perception of hospitals being associated with death
To counter the high mortality rate, new hospitals from the 1850s, started to be built
according to the ‘pavilion plan’. Here, pavilion denotes a detached or semi-detached
block in a hospital complex; pavilion hospitals consisted of independent buildings, either
completely isolated or linked to each other through open galleries. These hospitals
separated patients according to their condition and disease, provided cross ventilation,
fresh air and daylight, which led to faster patient recoveries and reduced the rate of
infections. The advent of the pavilion hospitals sharply reduced hospital mortality rates,
and changed the perception that the sick should be treated at home and that hospitals
were associated with death. This led to an influx of inpatients into public hospitals
resulting in the establishment of specialist hospitals, with general hospitals also opening
specialist departments to cater to patient needs.
Fig. 2: Example of a pavilion hospital
Source: Nomura research
3
Late 1900s – a shift from multi-bed wards to smaller wards and private rooms
As hospital facilities improved and technological and medical advancements continued,
public hospitals started to get patients from all strata of society, including the affluent.
While the ward design remained the predominant approach, better accommodations
were available for a fee to patients able to afford it. As the need for private rooms in
public hospitals started to be recognised, newer hospitals were built with smaller wards
and more private rooms. This has been increasingly seen in the US, with most of the
new general hospitals being built since the turn of the century, having only private rooms.
While private rooms are still not as ubiquitous in most of Europe, they are available to
patients willing to pay extra for the service. In Asia as well, most of the new private
hospitals are being built with private rooms or two-bedder rooms.
Modern hospitals – focused around surgeries and post-operative care
Most modern hospitals in urban areas are sprawling buildings, where patients go for
consultations with doctors and specialists who diagnose them based on their symptoms.
In this, the specialists are aided by the use of advanced medical technologies, clinical
laboratories and diagnostics. Based on the diagnosis, if a surgery is needed, the patient
is admitted into the hospital for monitoring and treatment before and after the surgery.
For the hospital, the surgery is the most revenue intensive segment of this patient-cycle,
while the least revenue intensive segment is the time spent by the patient in the ward
before and after the surgery. In order to improve their overall revenue intensity, most
hospital operators are focused on doing more complex surgeries while at the same time
trying to reduce the length of stay (LOS) of patients before and after the surgery. Private
hospitals in the Asia-Pacific region, and especially in Singapore, have taken a number of
steps to reduce their LOS including: 1) reducing the number of hospitalisation days prior
to surgery with patients typically admitted on the day of their surgery for most procedures;
2) increasing the proportion of day surgeries including colonoscopy, gastroscopy,
cystoscopy and by increasing the portion of laparoscopic procedures; and 3) reducing
post-operative hospitalisation by keeping patients under observation for a suitable
number of days, after which they are encouraged to return home with regular follow-up
checks done at outpatient clinics. Similarly, medical tourists are encouraged to stay in
hotels near hospitals during their follow-up observation period. These steps have helped
to reduce the private hospitals’ LOS in the region to 3-4 days as compared with 15-20
days in Japan and 4-5 days in the US. However, with the recovery time for patients being
directly linked to the complexity of the surgery, we see limited room for further reduction
in LOS below three days as hospitals try to conduct more complex surgeries.
4
Next-generation hospitals – built round

technology
While most modern hospitals focus on a patient treatment cycle which encompasses the
diagnosis, treatment, monitoring and care of the patient at the hospital, we expect this to
change as hospitals continue to evolve in the face of changing patient demographics and
needs. We see two key factors influencing this next stage of evolution for hospitals:
• Shift in disease profile from communicable diseases to chronic conditions: As life
spans across the globe continue to rise, and most developed countries suffer from an
ageing population and unhealthy lifestyles, we expect the disease profile to continue to
shift from communicable diseases to more chronic conditions. Patients with conditions
such as diabetes and cardiovascular diseases need to be constantly monitored in order
to prevent their condition from exacerbating.
• Continued improvements in technology: As telecommunication infrastructure
continues to improve in most major regions globally and the use of technology
becomes more ubiquitous, we expect hospitals to increasingly integrate technology into
their operations.
As the role of technology increases, we expect most of the diagnosis and monitoring of
patients to be shifted out of the hospital setting and handled online. The hospitals in turn
would primarily focus on conducting surgeries and dealing with more complex multi-
speciality cases thereby increasing their revenue intensity. As hospitals take on a more
limited but specialised role in the future, we believe this would also provide opportunities
for organisations focused on complementary services such as Remote ICUs, Intensive
Outpatient Care Programs and Urgent Care Centres.
Managing chronic conditions – bringing the hospital to the patients home
As mentioned above, patients with chronic illnesses need to be constantly monitored in
order to ensure that their condition does not escalate. These patients also tend to
undergo regular check-ups to ensure that their condition has not deteriorated, and are
often admitted to the hospital for monitoring purposes, resulting in increasing stress on
hospital networks. However, as advances in high-speed internet, remote-monitoring
technology, telemedicine and wearable devices continue, we believe these patients will
be able to consult with doctors, get diagnosed, be prescribed medication and have their
condition actively monitored, all from the convenience of their own home. In essence,
this would bring the hospital to the home of the patient. If the condition of the patient
worsens and more intensive care is needed, they can then be admitted to the hospital.
Moving the hospital setting to the home of the patient is also expected to affect recovery
times and success rates of the procedure. Studies have shown that these factors are
directly impacted by the patient’s environment. Already, a number of hospitals have
started to incorporate this by building Japanese gardens in the hospital building, offering
yoga classes to patients and playing classical music in the wards.
Lower bed count and more automation should reduce the time to break-even
With most of the monitoring and care for patients being shifted to their homes, we
believe that hospitals in the future can function with only about half the bed count as
compared with current hospitals, while maintaining their occupancy rates of 65-70%.
This, in turn, will also reduce the number of nurses and support-staff needed to run the
patient wards and help alleviate some of the manpower shortages facing this sector. We
also expect hospitals in the future to increasingly rely on automation, robots and self-
service kiosks for entering patient information at the reception, receiving patient samples
for tests and diagnostics, pharmacy services, billing and patient discharge amongst other
services. We believe the lower bed count and increased automation should also help to
reduce the time to break-even for newer hospitals.
5
Asian hospitals – behind the curve

The shift in disease profile from communicable to chronic conditions was first felt in the
developed world along with other challenges including an ageing society, rising
urbanisation and shortage of healthcare personnel. This has allowed many healthcare
providers in that region to work towards re-engineering their hospitals to meet these
challenges. Major healthcare operators such as Kaiser Permanente and the Cleveland
Clinic have increasingly integrated telemedicine and remote patient monitoring into their
operations and allowed more patients to receive quality care in their own homes. While
these challenges are being increasingly felt by most Asian countries, the hospitals in the
region still remain far behind the curve in managing the next phase of their evolution.
Japan leads the way in Asia followed by Singapore
Within Asia, Japan leads the way in meeting the challenges of a super-aged society
through the adoption of information and communications technology (ICT) in its
healthcare system. Outside Japan, we see hospitals in Singapore – both public and
private – and, to an extent, in Thailand increasingly looking at integrating technology into
their daily operations to improve patient care. We believe one of the major drivers for this
is that hospitals in both regions remain focused on medical travellers apart from local
patients. Investments in the most advanced medical technology and the latest surgical
developments, including robotic surgery, 3D printing and hybrid operating rooms, can be
effective marketing tools for these hospitals, and can allow them to differentiate
themselves from their competition and attract new patients from across the world. These
investments can also allow hospitals to treat patients with more complex cases, thereby
increasing their revenue intensity.
Within Singapore, we see IHH Healthcare as best placed to benefit from the increasing
use of technology in the healthcare ecosystem. The company’s hospitals have been at
the forefront in incorporating newer technologies and medical innovations in order to
improve patient care and have benefited from faster growth in revenue intensity over
FY15-17 as compared to peers such as Raffles Hospital. IHH’s Mount Elizabeth Novena
will be the only private hospital in South East Asia with a Proton Beam Therapy machine
in 2021. In Thailand, BH and BDMS, with commitments to become top hospitals in the
region, have continuously kept track of and invested in new technologies. Being one of
the largest hospital networks in the world, BDMS has also secured several collaborations
in research and personnel training with globally top medical institutes, including in the US
and Japan.
Fig. 3: Valuation table

Company Ticker Price Rating PER(x) EV/EBITDA(x) PBV(x) ROE (%)
FY18F FY19F FY18F FY19F FY18F FY19F FY18F FY19F
Malaysia
IHH Healthcare IHH MK 6.09 BUY 67.8 42.8 20.2 16.2 2.0 2.0 3.0 4.7
KPJ Healthcare KPJ MK 1.06 Not Rated 27.9 25.9 13.2 12.2 2.6 2.4 10.1 10.5
Average 47.9 34.3 16.7 14.2 2.3 2.2 6.6 7.6
Thailand
Bangkok Chain BCH TB 16.00 BUY 37.8 32.7 18.9 17.0 6.9 6.2 19.1 19.8
Bangkok Dusit BDMS TB 25.25 BUY 39.8 35.8 23.1 20.8 5.8 5.3 15.1 15.5
Bumrungrad BH TB 192.50 BUY 31.7 28.5 20.7 18.8 7.4 6.5 25.1 24.3
Chularat Hospital CHG TB 2.38 BUY 39.9 35.4 24.4 22.0 6.4 5.7 17.1 16.9
Average 37.3 33.1 21.8 19.6 6.6 5.9 19.1 19.1
Singapore
Raffles Medical Group RFMD SP 1.06 NEUTRAL 31.7 32.9 22.4 23.6 2.4 2.3 7.7 7.1
India
Apollo Hospital APHS IN 999.40 BUY 32.8 27.1 15.5 13.2 3.3 3.0 11.7 11.7
Fortis Healthcare FORH IN 143.75 NEUTRAL 77.3 37.8 18.0 13.5 1.4 1.4 1.9 3.7
Average 55.0 32.5 16.8 13.3 2.4 2.2 6.8 7.7
China
Aier Eye Hospital 300015 CH 31.04 BUY 48.5 36.4 40.3 33.1 8.6 7.2 18.5 21.5
Phoenix Healthcare 1515 HK 9.99 Not Rated 20.9 15.9 14.5 12.6 2.1 2.0 7.2 7.8
Average 34.7 26.2 27.4 22.8 5.3 4.6 12.9 14.6
Indonesia
Siloam International Hospitals SILO IJ 4.45 BUY 57.3 45.3 10.3 8.2 1.6 1.5 2.3 3.4
Mitra Keluarga Karyasehat MIKA IJ 106.44 NEUTRAL 36.8 34.5 26.4 23.4 7.0 6.8 19.4 19.9
Average 47.1 39.9 18.4 15.8 4.3 4.1 10.9 11.7
Japan
Cyberdyne 7779 JP 1,348 BUY - 322.1 898.6 151.0 6.3 6.2 -0.1 2.0
M3 2413 JP 4,590 BUY 69.4 55.6 40.4 33.5 14.9 11.7 23.5 23.6
Secom 9735 JP 8,262 BUY 21.2 18.5 8.4 7.5 1.8 1.7 8.7 9.4
Ship Healthcare Holdings 3360 JP 4,035 BUY 18.1 16.2 8.0 6.9 2.0 1.8 11.3 11.7
Average 36.2 103.1 238.9 49.7 6.3 5.4 10.9 11.7
Source: Bloomberg consensus forecasts for not-rated stocks, Nomura estimates. Note: Pricing as of 11 June 2018 close.
6
Technology to drive healthcare inflation

Healthcare spending has been growing faster than the gross domestic product in most
countries over the last decade and rising healthcare expenditure remains a concern for
many governments. This healthcare inflation has been attributed to a number of factors,
including: 1) an ageing population as elderly people tend to use healthcare services
more often with the level of care being more intensive as compared to the younger
population; 2) longer life expectancy leads to an increase in the prevalence of diseases
and especially chronic conditions such as cancer, heart disease, diabetes and obesity; 3)
changing disease profile from communicable diseases to more chronic conditions,
resulting in an increase in spending due to the higher cost of treatment of such
conditions; 4) increase in personal incomes leading to higher spending on healthcare
needs; 5) rising labour costs for healthcare professionals and administrative costs for
hospitals as higher input costs for healthcare are generally passed on to the patients;
and 6) rising insurance coverage which leads to more patients having access to
healthcare facilities for their treatment needs.
Studies show that technology is the biggest driver of costs

While the factors mentioned above are key contributors to healthcare inflation, the
general consensus among health economists is that the growth in spending in health
care is principally the result of new medical technology and services, and their adoption
and widespread application. These advances in medical sciences have made a large
number of new therapies available to patients and their doctors and can be broadly
classified into two categories: 1) medical advances that allow for the treatment of
previously untreatable conditions; and 2) advances that improve medical outcomes
relative to earlier methods of treatment resulting in additional cost. As shown in Fig. 4,
empirical estimates from studies show that ~50% of all long-term growth in health care
spending in the US during 1940-1990 has been associated with technological advances
in medicine.
Fig. 4: Estimated contributions of select factors in the growth in healthcare spending in the US (1940 – 1990)
(%) Smith, Heffler & Cutler Newhouse
Freeland (2000) (1995) (1992)
Aging of the population 2 2 2
Changes in Third - Party payment 10 13 10
Growth of personal income 11 - 18 5 <23
Prices in the Health Care sector 11 - 22 19 -
Administrative costs 3 - 10 13 -
Defensive medicine and supplier induced demand 0 - 0
Technology - related changes in medical practice 38 - 62 49 >65
Source: US Congressional Budget Office, Nomura research
While the impact of an ageing population looks limited in the US, this was because the
US population aged only gradually during this period. The Congressional Budget Office
(CBO) estimates that the effects of ageing will increase as more of the population
reaches retirement age. Nevertheless, the course of technological innovation is expected
to have a far greater effect on the growth of healthcare costs.
Factors influencing the ability of technological change to impact costs
The ability of a particular technological change to impact costs depends on a number of
factors, including whether the technology:
• Allows treatment for previously untreatable conditions – This tends to increase
overall healthcare costs by bringing treatment options or more aggressive treatments to
patients who would have otherwise not had many options
• Is a substitute for an existing treatment – Such substitutive treatments may actually
reduce the overall healthcare spending in the long run if they are able to substitute for
more expensive current treatments.
7
• Extends the life of a patient – This tends to increase overall healthcare costs as the
patient gets additional years of healthcare consumption. On the other hand, the
patients could live the added years with a better quality of life, providing possible cost
savings and social benefits.
• Increases the intensity of use of technology for the same condition – The use of
more technologically advanced products will increase per patient costs but can help to
lower overall healthcare costs if they are targeted towards only those patients who
require such advanced treatments.
• Affects the capacity of the healthcare system to treat more patients – Some
technological innovations could lead to an increased use medical personnel,
consumables and require additional training if they use a new technique while others
may reduce time or personnel. In general, some technological changes may improve
the efficiency of the healthcare system by reducing the number of hospital visits,
procedure time, length of stay for the patient during a hospital visit and thus increase
the capacity of the facility to treat more patients.
Technological advancements can also generate additional demand for healthcare from
patients as well as demand for insurance coverage. This expansion in coverage provides
further incentives for companies to develop new technologies further contributing to a
growth in healthcare costs.
Examples of technology: The CAD cycle
As shown in Fig. 5, there have been a number of significant innovations in the treatment
of coronary artery disease (CAD). These innovations have historically occurred in 10-
year cycles with the PTCA balloon catheters in the 1980s followed by the bare metal
stents in the 1990s, and the drug eluting stents over the past decade. Currently, the
forefront of innovation in catheter-based products are intravenous diagnostics devices
such as intravascular ultrasound (IVUS), optical coherence tomography (OCT), and
fractional flow reserve (FFR), and trans catheter heart valves (THV) for catheter-based
heart valve replacement.
Fig. 5: Development of catheter-based products for coronary artery diseases
8
Catheter products for coronary heart disease become a mature market in roughly 10
years after their launch before giving way to new innovation products. These newer
products are typically more advanced or focused on an unmet need and are thus higher
priced compared to the previous cycle. With replacement demand accounting for more
than 90% of sales, this CAD cycle lends to continued healthcare inflation.
Investments in technology have led to better healthcare outcomes
While medical technology has been shown to be the major driver for healthcare inflation,
it is important to understand if the additional benefits accrued to patients and the
healthcare system at large justifies the increase in costs. In their research paper, ‘The
value of medical spending in the United States, 1960 – 2000’, Cutler et al showed that
average life expectancy in the US increased by 7 years from 1960 to 2000. Half of this
increase, or 3.5 years, was due to improvements in healthcare. According to the
researchers, each year of increased life expectancy cost an average of USD19,900 per
year of life gained. With the value of an additional year of life ranging between
USD50,000-200,000, the study concluded that the increased spending had been a
worthwhile investment, on average.
Singapore – IHH hospitals have benefited from technology

investments
To better understand the role that technological improvements play in healthcare inflation,
let us look at the growth in revenue per inpatient for various procedures at three of the
major private hospitals in Singapore – IHH Healthcare’s Mount Elizabeth Novena
hospital (MEN), Mount Elizabeth Hospital (MEH) and Raffles Hospital (RH). Amongst
these hospitals, MEN uses the most advanced technological instruments and devices,
including robotic surgery and hybrid operating rooms, followed by MEH and then RH.
According to data from the Ministry of Health, this emphasis on technology has borne
results with MEN seeing a higher growth in revenue per inpatient over FY15-17. IHH’s
other major hospital, MEH, has also seen higher growth for most procedures during
FY15-17 as compared to RH.
Fig. 6: IHH hospitals have seen a higher Revenue per inpatient CAGR over FY15~17 as compared to Raffles Hospital
Mounth Elizabeth Novena Mount Elizabeth Raffles
25%
21%
20%
17%
15% 14%
14%
13%
12%12% 12% 12%
12%
11%
10% 10%
10%
7%
7%
6% 6%
5% 5%
5% 5%
3%
2%
2% 2%
1%
1%
0% -2% -3%-5%
URTI
Kidney and UTI

UT Cystoscopy
Normal childbirth
Urinary stones
Colonoscopy
Gastroenteritis
Benign lesion surgery (FRS)

Haemorrhoidectomy
Viral illnesses
-5%
-10%
Note: Growth rate is calculated based on the middle bill size. FRS - Female Reproductive System, UT – Urinary tract, URTI – Upper respiratory tract infection, UTI – UT infection.
Source: Ministry of Health, Nomura research
9
The Mount Elizabeth Novena (MEN) hospital started operations only in 2012 and was
fully ramped up to its full capacity of 333 beds in 2017. In comparison, the 345-bed
Mount Elizabeth Hospital (MEH) has been operating since 1979. Despite this, the
number of high-revenue-intensive surgeries at MEN has already surpassed that of MEH
in many key surgery types, including for spine, shoulder and fractured joints. We believe
it is largely the higher level of technology present at MEN which allows it to do more
revenue-intensive complex surgeries and to attract medical travellers in need of such
surgeries. On the other hand, according to data from the Singapore Ministry of Health,
the only major revenue-intensive surgery that appears to have been done at the Raffles
Hospital is the surgical removal of benign lesions from the female reproductive system.
Fig. 7: IHH hospitals have conducted more major surgeries during Jul 2016-Jun 2017 as compared to Raffles Hospital

350
300
250
200
150
100
50
0 Gall Bladder
Prostate
Spine
Sinus
Nose
Breast
Shoulder
Bening lesions - FRS
Hysterectomy
Spinal body fusion
Tonsillectomy
Knee reconstruction
Fractured joints
Thyroid
Note: The surgeries are ordered in terms of revenue intensity

In the following sections, we look at some of the technologies, that are already in use in
the US and Europe, which can be applicable for hospitals in the region as they try to
improve patient care, improve their hospital operations and manage the next phase of
evolution.
10
Technologies for improving patient care

In today’s world, technology plays an important role in every industry including
healthcare, where continued improvements in medical technology have helped doctors
and healthcare operators to better diagnose and treat patients. Hospitals and healthcare
operators have continued to adopt newer and more advanced technologies to improve
patient care and differentiate themselves from their peers given the rising standards of
competition. In the 21st century, we have seen technological advancement in healthcare
being driven by increasing access to the internet and the widespread availability of
connected devices.
The first major technology based on connected devices to be put in widespread use was
the Electronic Health Record (EHR). EHR systems are designed to collect patient health
information in an easily accessible digital format. The information collected includes
personal information, medical history, medication, laboratory results and helps to capture
the state of the patient over time. An EHR eliminates the need for physical medical
records and can be seamlessly shared between the patient’s doctors, care givers and
insurance companies. EHRs can also help to detect long-term changes and examine
trends in the patient population to aid in the development of new drugs and treatments to
improve patient care.
As wireless technologies become more widespread and convenient to use we are now
seeing the second wave of technologies based on connected devices being increasingly
adopted in the healthcare ecosystem. In the following sections, we look at some of these
technologies that are being used to improve patient care in more detail, to understand
the advantages they provide for patients and the hospitals, their shortcomings and their
real world benefits. While some of these technologies, including telemedicine and robotic
surgery, are quite advanced albeit still evolving and improving, others like 3D printing are
still in their early stages and are gaining more widespread acceptance.
Fig. 8: Major technologies being used to improve patient care

Technology Capital cost Operating Return on Benefits Major companies
costs investment Hospitals / Doctors Patients involved
Philips Healthcare
GE Healthcare
Telemedicine High Moderate IBM
McKesson
Corporation
Remote Medtronic
patient Moderate Moderate Biotronik
monitoring Abbott
Google
Wearable Philips Healthcare
Moderate Low
devices Medtronik
Omron Corporation
Intuitive Surgical
Robotic Mazor Robotics
High High
surgery Medicaroid
TransEnterix
Stratasys
3D Printing Moderate Low 3D Systems
GE Healthcare
Infection
Moderate Moderate Isomark
detection
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Telemedicine – improving convenience for patients

Telemedicine involves the use of telecommunications infrastructure to provide health
care services, such as health assessments or consultations, remotely. The use of
telemedicine services allows doctors and other healthcare providers to asses, diagnose
and treat patients without the need for direct physical contact. It has been increasingly
used by healthcare providers to overcome distance barriers and improve access to
medical services, in areas such as distant rural communities, where it would not have
been available in the past.
The first example of telemedicine dates back to 1948, when radiology images were sent
24 miles between two towns in Pennsylvania, USA via a telephone line. As technology
evolved, the use of telephones and radios was supplanted by video-telephony and
advanced diagnostic methods supported by distributed client/server applications. The
availability of faster internet connections and the proliferation of smartphones and hand
held devices have continued to drive the use of telemedicine by doctors and healthcare
providers.
Telemedicine vs Telehealth
Although telemedicine is often used interchangeably with telehealth, it is actually a
subset of the latter. While telemedicine refers specifically to the use of medical
information exchanged for the purpose of improving a patient’s health, telehealth refers
to a broader spectrum of remote healthcare services and includes non-clinical services
including continuing medical education, training and administrative meetings.
Fig. 9: An example of ‘Store-and-forward’ telemedicine
Telemedicine – Three main categories

Telemedicine can be classified into three main categories:
Interactive telemedicine: This is a live interaction and allows physicians and patients to
communicate via audio-visual telecommunication technologies such as video conference
or telephones. These sessions serve as a substitute for in-person interaction and can be
conducted from the patient's home or in a nearby medical facility.
Store-and-forward: This is also known as asynchronous telemedicine and allows the
transmission of recorded health history such as laboratory results and X-rays through a
secure electronic communications system to a doctor or specialist present at another
location. As compared with a real-time visit, this type of telemedicine provides access to
data after it has been collected and stored and involves the use of communication tools
such as emails.
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Remote patient monitoring (RPM): This enables the monitoring of patients outside
conventional clinical settings through the use of devices which collect medical and vital
signs from the patients. This data can be analysed by doctors and other healthcare
professionals present in a remote location. We discuss RPM systems in more detail
starting from page 15.
Benefits for patients include increased access, convenience

The rise of telemedicine has increased patients’ access to quality care while making it
more convenient and cost effective, in our view. It allows patients to be treated from the
privacy of their homes or another viable location. This can be particularly useful for
elderly patients and those living in remote or rural areas as they can still get access to
specialist care despite geographical or distance hurdles. The use of telemedicine can
also play a vital role in improving the quality of patient care through patient-centred
approaches, such as improved timeliness of care. Using telemedicine can also allow
patients to address their healthcare issues with immediate consultations with specialists
thereby starting treatment options faster. The use of telemedicine can also result in lower
costs for patients by eliminating travel time and associated expenses.
The use of telemedicine also provides a number of benefits for doctors and healthcare
providers. It can help doctors refer patients to specific specialists while, at the same time,
allowing these specialists to expand their patient base beyond their geographic location.
Due to its convenience for patients, telemedicine can also help reduce the number of
cancellations or no-shows. Healthcare providers can easily reach out to patients prior to
the designated time to remind them of their appointment. The use of telemedicine and
electronic data storage can also help to reduce service and operating costs for the
doctors and hospitals.
While we expect telemedicine to grow rapidly over the next few years due to the number
of advantages it provides, it still poses some technical and practical issues for healthcare
providers and doctors including: 1) inability to prescribe medications as some regions do
not allow physicians to prescribe online and often require a physical examination or
evaluation before a prescription can be made; 2) providers need to be trained on how to
use the equipment used for telemedicine and it can also entail additional costs for
staffing and purchasing equipment, which could be prohibitive for smaller healthcare
providers; and 3) some doctors and patients continue to prefer in-person consultations
due to the personal attention that it allows for the patients.
Telemedicine expected to be used to attract medical travellers

The telemedicine market has witnessed strong growth due to increasing government
expenditure on healthcare, focus towards patient privacy and the emerging trend of
personal healthcare. This has been largely driven by hospitals in North America,
especially in the US and in Europe. While we expect North America to continue to
dominate the global telemedicine market, we also see growth being driven by countries
in the Asia Pacific region due to a rapidly ageing population along with an increasing
number of patients suffering from chronic diseases and the growing IT industry.
Telemedicine to benefit operators focused on complex cases – IHH and Raffles
We see telemedicine services being increasingly used by hospitals in the region to
attract medical travellers. Most of the major hospital operators including IHH Healthcare
and Raffles Medical have established representative offices across the world, which
provide a number of services for medical travellers including setting up appointments
with specialists, flight reservations and visa arrangements. We believe telemedicine will
be increasingly used to organise and schedule remote consultations between
prospective patients and specialists. Such health assessments through the use of
telemedicine can help doctors make informed decisions about the healthcare needs of
the patients despite the physical distance. Patients can undergo additional tests and
diagnostics in their home country and can then make a decision in consultations with
their doctors on travelling for further treatment if needed. We believe this provides a
relatively inexpensive way for hospitals to attract medical travellers, reduce length of stay
of such patients and increase their revenue intensity. It can also allow hospital operators
to streamline their operations and plan in advance for each medical traveller.
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We believe the use of telemedicine to attract medical travellers should benefit hospital
operators who focus on patients with more complex cases such as transplants and
cardiovascular disease. Amongst the companies under our coverage we see this
benefiting IHH Healthcare and Raffles Medical in Singapore who have established
offices across Asia to attract medical travellers to their Singapore hospitals.
Thailand – BH and BDMS investing in telemedicine

In Thailand, both BH and BDMS have invested in telemedicine technology in recent
years. In the case of BDMS, given its large network of hospitals, there is use of
telemedicine between doctors in spoke hospitals and hub hospitals, e.g. one in the
upcountry with headquarters hospitals, for consultation to deliver the best treatment
method.
• There has been a joint effort between Sony and Samitivej Hospital (under BDMS group)
to improve the delivery of healthcare services in remote areas of Thailand. The Sony
Telehealth Camera (STC) system is designed to meet the specific needs of regional
healthcare. The system enables two-way audio and one-way video communication
using IP technology, allowing specialists to remotely access patients and conduct
medical consultations.
• Samitivej Children’s Hospital began a collaboration with Doernbecher Children’s
Hospital of the Oregon Health and Science University (OHSU) in the US in a quest to
enhance its excellence in paediatric care. Dr. Robot, a huge step in the field of
telemedicine, is a portable device that integrates medical equipment and allows doctors
on both ends to have a better visual assessment, improve the triage of these critically-ill
children and improve resuscitation especially during transportation. Doernbecher
brought a team specialising in medical transportation to demonstrate Dr. Robot, with
both the Doernbecher and Samitivej teams exchanging their case knowledge and
experiences.
Clinic operators like IHH and Raffles can also use telemedicine to attract patients
As mentioned above, one of the major advantages of telemedicine is that it can be used
to remove distance barriers between patients and doctors. We see an increase in the
use of telemedicine benefiting independent doctors and healthcare companies who
operate clinics and medical centres. In Singapore, IHH Healthcare has been using
telemedicine in its primary care segment in Singapore, and we believe Raffles Medical
can also benefit from making investments in telemedicine given that over 40% of its
revenue comes from its clinics business.
In the sections below, we look at some of the major technologies, including remote
patient monitoring and wearable devices that we believe will help to drive the adoption of
telemedicine by healthcare operators.
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Remote Patient Monitoring – tracking medical and vital signs

Remote Patient Monitoring (RPM) is a technology to enable monitoring of patients
outside conventional clinical settings, including patients who have been recently
discharged from hospitals. To facilitate remote monitoring, patients are provided with
devices which use digital technologies to collect medical and vital signs from patients,
including blood pressure, heart rate, respiration rate, body temperature, blood oxygen
and weight, depending on their condition. This information presents a detailed picture of
the patient’s health and is electronically transmitted to health care professionals including
doctors, in facilities such as monitoring centres in hospitals and intensive care units,
nursing facilities and off-site case management programs. This allows healthcare
professionals to monitor the patients remotely and prescribe treatment based on the
information received.
RPM also allows doctors to see the results of their prescribed treatment for patients and
to detect problems before they become serious. The doctors can then make adjustment
to the treatment plan to improve the quality of care for the patient. The constant
monitoring also helps the patients learn more about their condition and take control of
their healthcare needs, as it allows them to identify and respond to downturns in their
health as shown by the data. The continuous stream of medical information can also be
stored in healthcare data centres for future use by the patient or the doctors.
Fig. 10: Remote patient monitoring system
Source: IOT4Health, Nomura research
Use of RPM can increase healthcare access and lower costs

The use of RPM systems to treat patients can help increase healthcare access by
eliminating geographic barriers between the doctors and patients. This allows healthcare
professionals to expand their patient base as they are no longer limited by conventional
clinical settings. RPM also improves the quality of care as the continued collection of
medical and vital signs provides doctors, nurses and medical professionals with the
necessary information to detect any deterioration in the patient’s medical condition and
prevent any major problems or further complications before they occur. RPM programs
have largely focused on serious, chronic conditions like congestive heart failure, which
typically result in repeat hospitalisations and the use of this technology can help patients
avoid this by allowing them to be treated at home for minor issues. It can also reduce
traveling costs for patients, as they do not have to be physically present at the hospitals
repeatedly for treatment.
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Along with its benefits for patients, RPM systems also help healthcare providers by
increasing the capacity of the healthcare system. With patients no longer required to be
physically present at the healthcare facilities, the use of RPM helps to reduce the strain
on the available healthcare resources. This increases the capacity of the healthcare
system by making it possible to treat more patients effectively. The use of this
technology also allows doctors and nurses to focus their attention on those particular
patients who need additional care rather than on each individual patient. This also allows
the doctor’s to better utilise their time by focusing on other critical tasks.
We see rising adoption of RPM improving patient outcomes

We have seen an increasing adoption of RPM by healthcare operators, especially in the
US, as private hospitals try to improve treatment outcomes and the quality of care for
patients. A case in point is Essentia Health, which operates 16 hospitals and over 60
clinics in the US. Essentia uses RPM to focus on improving the health of congestive
heart failure patients and to enhance their quality of care. Patients are given an
electronic scale, which measures their weight every day and transmits this information
along with the patient’s response to questions asked by the scale. This information is
then used by physician assistants and nurses to deliver care under the guidance of the
cardiologist. The use of RPM systems has allowed Essentia Health to reduce the
number of re-admissions to the hospital within 30 days to 2% as compared with the
average of 25% for congestive heath failure patients in the US.
According to the Swedish market research firm Berg Insight, the number of remotely
monitored patients grew 44% y-y in 2016 to 7.1mn patients driven by rising market
acceptance. The firm also estimates that the number of remotely monitored patients will
continue to record a CAGR of 47.9% to reach 50.2mn by 2021F. Revenue for remote
patient monitoring solutions reached €7.5bn in 2016, with connected medical devices
accounting for 67.5% of the revenue. Total revenue is expected to record a CAGR of
33.8% to reach €32.4bn by 2021F, according to Berg Insight.
Fig. 11: Number of remotely monitored patients expected to record a CAGR of 47.9%
(mn units)
60
50
40
30
20
10
0
2015 2016 2017 2018 2019 2020 2021
Source: Berg Insight, Nomura research
Patient adherence is the key to a successful RPM system

While RPM technology has been shown to reduce healthcare costs and increase access,
some studies have also shown limited benefits from its use. In 2016, studies in the
Journal of the American Medical Association (JAMA) and PeerJ evaluated RPM systems
at major medical centres, and found no significant difference between patients who used
RPM systems and those who used normal care. We believe that the main reason for this
is that RPM systems are still evolving and need to be tailored to meet the specific needs
of the patients and healthcare operators. Most of the RPM systems used till now have
required patients to enter data or answer questions manually which can lead to low
patient adherence. In the JAMA study, patients submitted their biometric data in less
than half the time requested by the researchers, while in the PeerJ study, 10~29% of the
patients did not record any of the required readings for the researchers.
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Along with the right technology platform with which to record and analyse the relevant
data, we believe an effective RPM system also needs to:
• Focus on patients who can understand the technology and adhere to its
demands: Low patient adherence is the biggest operational challenge to successfully
launching and running an RPM system. Thus, healthcare operators needs to focus on
patients who understand the needs of the RPM system and are motivated to ensure
better compliance with the system by adhering to its demands and requirements. As
RPM systems move towards more automated data collections thought connected
medical devices and through the increasing use of wearable devices, we expect
improved patient adherence.
• Focus on the right patient condition and affliction: Most current systems try to
focus on multiple chronic patient conditions including asthma, congestive heart failure
(CHF), chronic obstructive pulmonary disease (COPD) and diabetes. However, most
RPM systems are not capable of tracking relevant data across multiple conditions. The
more data the patient has to enter, the less likely they are to adhere to it. Studies have
shown that COPD and CHF are the conditions most linked to readmissions and the
need for emergency care and are thus the best suited for RPM systems.
• Focus on the appropriate metrics that map the systems objectives: The success
of the RPM system is based on tracking certain pre-decided metrics. These target
metrics used should be directly attributable to the performance of the program,
correspond to the goals of the healthcare operator and should be easy to track.
Use of RPM systems to further reduce patient’s length of stay

One of the major ways hospitals have improved their revenue intensity reducing is by
reducing the patient’s length of stay (LOS) through initiatives including an increase in the
number of laparoscopic procedures and same day admissions. These initiatives have
resulted in most of the major hospital operators in Asia successfully reducing their LOS
to ~3 days currently, with additional incremental reduction expected to have an adverse
impact on the quality of care. In such a scenario, we believe that an increase in the use
of RPM systems can help hospital operators further reduce the LOS by discharging
patients earlier and allowing them to recover at home, while being monitored remotely by
healthcare professionals. This also ensures that the quality of care is not compromised
as patients have been shown to recover faster at home with fewer complications.
The use of RPM systems can also benefit medical travellers in two key ways, in our view.
Firstly, it reduces the hospitalisation time for the patient following the procedure, and can
allow the patient to travel back home earlier. This can also reduce the overall cost for the
patient. Secondly, as discussed before, adhering to the requirements of the RPM can
help to reduce the likelihood of re-hospitalisation for the patient. This is especially
important for medical travellers with chronic conditions, as it reduces the need for the
patient to travel repeatedly for the treatment.
We believe that investing in RPM systems should benefit hospital operators who focus
on medical travellers and patients with chronic conditions such as cancer and
cardiovascular diseases. While hospitals will need to train their staff and doctors to
understand and analyse patient information, we expect them to be able to pass on the
~USD100 monthly cost of the RPM systems to the patients. In Singapore, we expect IHH
Healthcare to make investments in RPM systems, and we see Raffles Medical also
benefiting from its use due to its group practice model.
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Wearable devices – real-time data for RPM and elderly care

Wearable devices are electronic devices in the form of accessories or implants that can
be worn on the body. Healthcare wearables are the next step in the continued evolution
of wearable technology and where its greatest potential lies, in our view. While the first
wearable healthcare device – the hearing aid was developed over 100 years ago, current
devices include features such as wireless data transmission, real-time feedback and a
signalling mechanism. The data generated by the devices are being used by doctors and
care-givers to improve the standard of care while also being used by patients for better
health management by providing them access to their personal health data. The
healthcare wearables segment can be divided into four broad categories:
• Fitness: this is the most popular category and includes fitness, activity and sports
trackers. The ability to access personal health data has been the major driver of growth.
• Diagnostics and monitoring: These are devices that provide valuable health
information about the patient and include devices for sleep monitoring, glucose
monitoring, EEG tests and cardiovascular monitoring
• Therapeutic: These are devices that monitor the patient’s disease and provide
feedback to improve the quality of care. Such devices include pain management,
insulin management and devices to remind patients to take their medication.
• Injury prevention: These are devices that monitor body motion, detect falls and
provide other health information for injury prevention and rehabilitation.
Fig. 12: Major wearable healthcare devices

Fitness tracker Smart watch Sleep apnea device
Wearable glucose monitor Pulse oximeter Blood pressure monitor
Focus areas include chronic conditions and elderly care

While fitness-based wearable devices remain the most popular segment, healthcare
operators and patients are increasingly using wearable devices as part of RPM systems.
We believe the two major focus areas for developing healthcare wearables are expected
to be for the treatment of chronic conditions and for elderly care and assisted living.
Chronic diseases, including cancer, diabetes and cardiovascular diseases require
regular monitoring and strict adherence to the treatment regimen in order for patients to
see benefits. In such a scenario, the use of wearable technology is expected to improve
treatment compliance and help the patients understand and analyse how the treatment
impacts their health. A case in point is wearable glucose monitoring systems which are
being used to monitor patient blood sugar levels and transmit the readings in real time.
This can help the doctors alter the treatment schedule if needed, while also allowing
patients to analyse the impact of the medication and their daily activities on their blood
sugar levels. Given the large patient population, we see the treatment of chronic medical
conditions evolving as the primary target for companies developing healthcare wearables.
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Another key segment where we expect wearable devices to play a key role is in elderly
care and assisted living. The use of wearable devices can allow for remote patient
monitoring by providing real-time updates on the patients’ vital signs, and signal care-
givers in case of any irregularities. For example ECG necklaces worn by patients monitor
and record the heart rate and ECG (electrocardiography) of the patients. Any
irregularities can be flagged to the doctors while any sudden change can be analysed
and treated simultaneously. As the population in the region ages, we see healthcare
providers trying to manage rising costs through the use of wearable devices.
Devices can reduce complications, improve quality of care

One of the biggest advantages of the use of wearable devices for patients with chronic
conditions and elderly patients is the reduction and prevention of complications. The real
time data provided by such devices can help identify the early-warning signs of
complications or acute events such as heart attacks. Early access to this information
allows physicians and care-givers to take remedial actions to prevent or mitigate such
events. This information can also allow physicians to proactively intervene and start
remedial treatment for the patients. This can help to reduce overall healthcare costs by
lowering the re-admission rate for patients. Moreover, these devices can also help to
reduce costs for patients by lowering the number of routine doctor visits. This, in turn,
allows doctors more time to focus on more complicated cases and improve revenue
intensity for healthcare operators. Along with early detection of complications, we see
wearable devices having an important role to play in improving the overall quality of care
for patients. As the data is provided directly to the healthcare professionals, it is
generally more accurate than the data reported manually by patients. The higher quality
of data from the devices leads to improved data analytics, and allows the doctors to
decide the most effective treatment for patients, essentially improving their quality of care.
Challenges include privacy concerns, data accuracy and educating patients

While wearable devices like fitness trackers for monitoring health data are seeing
increasing adoption for personal use, we believe that healthcare wearable devices still
face some challenges to their widespread use by patients, including: 1) privacy concerns
as the devices will be transmitting sensitive patient data; 2) ensuring accuracy of the
data; 3) providing confidence of its applicability to the patients and physicians; 4) need
for smaller devices with long battery lives; and 5) improving the user experience and
providing education and training to the users about the applications of the wearables.
Asia Pacific expected to drive growth over the next decade

While the US remains the largest market currently for wearable devices, we see demand
for these products being driven by the Asia Pacific region due to rising healthcare
spending, growing number of patients with chronic diseases including cardiovascular
conditions, increasing comfort with technology and higher awareness amongst care-
givers for the need for constant monitoring.
Within this region, we see healthcare companies focused on treating patients with
chronic conditions benefiting from the use of wearable devices. In Singapore, we expect
IHH Healthcare to take advantage of its investments in telemedicine and RPM systems,
and see it rolling out services to make it easier for caregivers and physicians to analyse
and process data coming from the wearable devices worn by patients. We also see this
trend benefiting healthcare operators that are skewed towards elderly care including
aged care and retirement facilities. In Malaysia, we believe investments in wearable
devices can improve the quality of care for KPJ Healthcare’s aged care business. In
Thailand, wearable devices are likely to become more prominent in the near future, due
to more investments in premium healthcare products from which hospitals will more
closely monitor the patients. We think use of wearable devices will be populated with
increasing number of elderly nursery homes and other non-curative care venues. We
see upcoming development of a condominium for the elderly by Thonburi Hospital Group
(THG TB, not rated) and a rehabilitation/transitional hospital by BDMS.
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Robotic surgery – a way to differentiate and attract patients

Robotic surgery is a form of minimally invasive surgery during which doctors use robotic
systems for surgical procedures. It was developed to overcome the limitations of the pre-
existing minimally-invasive surgical procedures such as limited visualisation, control and
precision, and to enhance the capabilities of the surgeons. The instruments used for the
surgery are mounted on to the arms of a robot and are small enough of fit into the
patient’s body through tiny incisions, allowing the surgeon more range and precision to
perform the procedure. As compared to a human hand, these instruments perform
certain actions through motions which are smoother and have feedback control. This
helps to reduce the tissue trauma and blood loss associated with surgery. An additional
arm of the robot has a high-definition camera that helps in visualisation, by magnifying
the tissues and organs of the patient’s body.
The arms of the robot are generally controlled by either: 1) a direct manipulator device
through which the surgeon’s normal movements are carried out by the robotic arms; or 2)
a computer controlled system as shown in Fig. 13. A major advantage of the computer
controlled system is that the surgeon does not need to be physically present near the
patient and can even conduct the surgery remotely. Robotic surgery can be used for a
number of procedures, including: 1) hysterectomies, 2) radical prostatectomies, 3) tubal
ligation, and 4) gall bladder removal.
Fig. 13: Robotic surgery
Source: John Hopkins Hospital, Nomura research
Robotic surgery offers a number of advantages over traditional surgery

While traditional open surgeries continue to dominate overall surgeries, we have seen
strong growth in robotic surgeries especially in certain segments including urology and
gynaecology. We believe that growth would be further fuelled by the numerous
advantages to patients from robotic surgery, which include:
• Reduced blood loss and minimal scarring: The use of tiny incisions during robotic
surgery as opposed to a significant incision results in reduced blood loss and
diminishes the need for transfusions for the patients. The tiny incisions are also able to
heal faster and leave minimal scarring on the patient.
• Fewer complications: The precision and dexterity provided to the surgeon by the
surgical robot can help to prevent any unforeseen errors, and reduce complications for
the patient.
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• Less pain and discomfort: With smaller incisions, the post-operative pain and
discomfort is also significantly less in the case of robotic surgery.
• Faster recovery time leading to shorter hospitalisation: Robotic surgery results in a
significantly faster recovery time for patients resulting in a shorter hospitalisation stay.
Most patients need only 1-2 days of inpatient hospital stay, followed by 2-3 weeks of
recovery at home.
• Reduced infections: The small incisions also reduce the risk of infections for the
patients and the hospital staff.
Furthermore, robotic surgery provides a number of key advantages for the surgeons
including: 1) better visualisation of the target area due to the high resolution camera; 2)
greater precision due to the instruments attached to the robots; and 3) enhanced
dexterity.
Cost-benefit analysis of robotic surgery still remains inconclusive
Given the higher cost of robotic surgery, there have been a number of studies comparing
its cost-benefit analysis versus open and conventional laparoscopic surgeries.
Researchers at the University of Stanford conducted an analysis with 24,000 kidney
cancer patients who needed laparoscopic surgery. They analysed data from 416
hospitals over 2003 to 2015, and found that there was no statistically significant
difference in outcomes or length of stay between robotic assisted and conventional
laparoscopic surgery, while the robotic surgery cost on average USD2,700 more per
patient.
Mazor Robotics, a company that makes robotic guidance systems for spine and brain
surgeries, recently conducted a study on the use of robotic-guided spine surgery in 379
patients. The data showed that the relative risk of complication was 5.3 times higher in
fluoro-guided surgeries as compared with robotic guidance and the relative risk of
revision surgery was 7.1-times for fluoro-guided surgeries. The study also showed a 78%
decrease in radiation exposure in the robotic surgeries. We expect that as newer and
more technologically improved robots are developed, the benefits of this technology will
become more apparent.
Intuitive Surgical’s da Vinci robots – the market leader

The first robot-assisted surgical procedure was done in 1985 when Unimation’s PUMA
560 robotic surgical arm was used in a neurosurgical biopsy. In 1990, the FDA approved
the first system for endoscopic surgical procedures, the AESOP system from Computer
Motion and in 2000, Intuitive Surgical’s da Vinci Surgical System became the first robotic
surgery system approved by the FDA for general laparoscopic surgery. Over the past 17
years, the da Vinci system has emerged as the global market leader for robotic surgeries.
Despite its high capital costs of USD0.5mn – USD2.5mn per robot, USD700-3,500 per
procedure and USD80,000-170,000 annually for servicing, the da Vinci robots have been
widely adopted by hospitals across the globe with over 4,500 robots installed as shown
in Fig. 14. The US remains the largest market for da Vinci robots, accounting for nearly
65% of the total installed base of robots. However, recent growth has been driven by
expansion in Asia especially in China and Japan.
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Fig. 14: Over 4,500 da Vinci robots installed globally
Source: Intuitive Surgical (Investor presentation), Nomura research
Over 800,000 procedures annually; growth driven by China, Japan and Korea
As shown in Fig. 15, the number of robotic surgeries worldwide has risen sharply at a
CAGR of 30% over 2006-16. The most common procedures include Gynaecology,
accounting for over 30% of 2017 da Vinci procedures; Urology accounting for around
30% of 2017 da Vinci procedures; and General Surgery, accounting for over 30% of
2017 da Vinci procedures. Overall procedures grew 16% in 2017 and Intuitive Surgical
expects 12-15% y-y growth in 2018F or nearly 1mn procedures. The US remains the
largest market, and accounts for nearly 75% of the total global procedures. However,
growth in procedures in the US has been overshadowed by Asian countries, driven by
China, Japan and Korea.
Fig. 15: Intuitive Surgical – Worldwide procedures
Number of procedures ('000s)

1,000
900
800
700
600
500
400
300
200
100
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Intuitive Surgical, Nomura research
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Robotic surgery being used to differentiate from peers and

attract new patients
Robotic surgery currently faces two major hurdles – its high costs and its inability as yet
to show significant benefit vs other surgeries. Despite this, we have seen continued
growth in overall robot installations and in the number of procedures being conducted
annually, especially in the US. We believe this is due to robotic surgery being
increasingly presented as a differentiator by hospitals to showcase their technological
superiority vs peers. A number of hospitals, especially in the US have used their latest
surgical robot acquisition in marketing campaigns to attract patients, including those
needing surgeries as shown in Fig. 16. This, in turn, ensures that the other hospitals in
the region need to match up by acquiring similar surgical robots or risk ceding ground to
it.
Fig. 16: Surgical robots – used in marketing campaigns by hospital operators
Asia – high entry costs should help early adopters like IHH, BH and BDMS
While Asia is expected to be a major growth driver for surgical robots, we believe the
high capital cost will remain a hurdle for many private hospital operators resulting in a
significant barrier to entry. We believe this should help early adopters like IHH
Healthcare, which uses the da Vinci Si surgical system and the Makoplasty robotic
system for partial knee replacements at its hospitals to attract patients, both local and
medical travellers. In Thailand, robotic surgery is also available at top-tier hospitals such
as BH and BDMS, which tend to have the widest range of robotic procedures offered
including Da Vinci robot (for urology disease treatment), Makoplasty (for joint
replacement), and robot-assisted spine surgery.
Along with the high capital cost, surgeries conducted through robots also typically cost
USD700-3,500 per procedure higher than regular laparoscopic procedures, due to the
usage of disposable instruments. We expect that hospitals who invest in robotic
surgeries will be able to pass on the higher costs to their patients and thus benefit from
the higher revenue intensity. Moreover, for healthcare operators like IHH Healthcare in
Singapore, and BH and BDMS in Thailand, who do not employ their own doctors, we
believe that the availability of robotic surgery will also help them attract doctors who are
proficient in such surgeries but may not be able to afford their own surgical robots.
23
3D printing – to become essential for complex cases

3D printing is the process of creating a three dimensional solid object from a digital
design, by laying down successive layers of material under the control of a computer.
The earliest use of 3D printing was to create prototypes of new devices in order to
reduce lead times and the cost of manufacturing. While the technology has continued to
attract a lot of attention for its applications in a number of fields from automotive to
construction, it is also being increasingly used in healthcare to create prosthetics,
implants and crucially, for surgical planning.
We see an increasing role for 3D printing in planning complex surgeries
With no human body being exactly alike, there is a high level of customisation required in
every surgery, reconstruction and in the fitting of prosthetics. As technology has evolved,
3D printers have become more adept at printing blood vessels, skin and human tissues.
We believe this has resulted in the technology becoming increasingly important to
planning complex surgeries. Hospitals can now take scans of the patient and use them
to create exact 3D models of specific parts of their anatomy. These models can then be
intricately studied by surgeons to practice, minimise unexpected errors and
complications and plan the actual surgery before even entering the operating room. 3D
medical models can also be used as a low-cost and effective learning tool for medical
students, surgeons and other staff members to get a hands-on learning experience of
the various organs in the human body.
Fig. 17: 3D printed model of a heart
The use of a 3D printed model ahead of the actual surgical procedure provides a number
of benefits for both the surgeons and the patients. Surgeons can use a 3D model of the
patient to plan ahead of time and practice complex procedures in order to eliminate
errors during the actual procedure. The 3D model can be used to explain the procedure
and discuss treatment options with the patients. Moreover, practicing on the 3D model
ahead of time can also help to reduce the amount of time spent conducting the
procedure as the surgeon will be more familiar with the patient’s body and know what to
expect. This can also help to reduce and rectify any complications that may arise during
the surgery. Overall, we believe that the use of 3D printing can help to improve the
success rate of complicated and high-risk procedures – including cardiac, orthopaedic,
vascular, neurosurgical and hepatobiliary procedures – and improve the quality of care of
the patients.
3D printing is also being used to create prosthetics and medical devices
3D printing is also increasingly being used in the creation of prosthetics and medical
devices for patients due to three major advantages:
• Its ability to be customised according to the patients’ needs: 3D printing can help
to customise joint replacement surgeries by designing a specific replacement rather
than trying to fit an off-the-shelf product. This can lead to faster recovery times and
improve the functionality of the patient after the procedure. Similarly, medical devices
such as hearing aids can be customised according to the patient’s inner ear and help to
provide better comfort and fit.
24
• Shorter turnaround time: 3D printed prosthetics and medical devices can also be
created much faster within 2-3 days for low-volume products, as compared with 4-6
weeks taken to manufacture a device made of aluminium. Similarly, dental implants can
be made within a day using 3D printing as compared with 1-2 weeks required earlier.
• Lower cost: Printing a prosthetic is much cheaper than constructing a prosthetic. This
can be especially beneficial for patients who outgrow their prosthesis quickly, such as
children.
3D printing can lead to higher revenue intensity, lower costs

According to IDC, an international market research firm, worldwide 3D printing spending
is expected to rise from USD13.2bn in 2016 to USD28.9bn in 2020F – at a CAGR of
22.3%. Within 3D printing, the fastest growing segment is expected to be healthcare,
which will be the second largest segment in 2020F, with revenue growing to USD3.1bn,
driven by strong investments from healthcare providers in the US and Western Europe.
While its use is still limited in the Asia Pacific region, we expect strong growth from the
region from 2020 as 3D printing becomes more widespread.
Within the Asia Pacific region, we see the use of 3D printers emerging as another point
of differentiation between hospitals, akin to surgical robots. While the capital cost of
<USD100,000 is not prohibitive and is expected to decline over time, we believe early
adopters should benefit from being able to conduct more complicated and high-risk
procedures, leading to higher revenue intensity of its patients. Hospital operators can
also use these services to attract specialists focused on these high-risk procedures to
conduct surgeries at their facilities. As discussed in the section below, studies have
shown that 3D printers can reduce surgery time by 3-4 hours, and result in significant
cost-savings for hospital operators.
In Singapore, we expect IHH Healthcare to be an early adopter of this technology. With
the company operating four hospitals in Singapore with a combined bed capacity of
~1,000 beds, we see a rapid ROI for such an investment. The use of 3D printers should
also help the company attract local patients and medical travellers in need of complex
and high-risk procedures.
3D printers have been shown to reduce time and costs for surgeries
As the usage of 3D printing increases in the US and Europe, studies have been
conducted to analyse its benefits for hospitals. In 2017, UK’s Queen Elizabeth Hospital
noted that the use of its in-house 3D printer had reduced surgical planning time by up to
93%. Moreover, the hospital had saved 3-4 hours surgical time per procedure, reducing
costs by up to GBP20,000 per operation. Further evidence comes from a recent paper
published in the ‘Journal of Children’s Orthopaedics’ by researchers from UC San Diego
and Rady Children’s Hospital. The researchers found that giving surgeons a 3D printed
model of a young patients hip joint to prepare ahead of time reduced the time needed to
conduct the actual surgery by 25%, which reduced the overall cost per surgery. As we
get more evidence of the advantages of 3D printers, we expect their usage by hospitals
to continue to rise.
25
Infection detection technologies

One of the major challenges facing healthcare operators is the fact that a large number
of patients, both in-patients and out-patients, are exposed to additional medical issues
including infections during their hospital visit. Studies have shown that hospital-acquired
infections (HAI) can impact up to 10% of patients. It is most common in elderly patients,
and those with chronic conditions or low immune resistance. According to the Centers for
Disease Control (CDC), each day one in 25 in-patients in acute-care hospitals in the US
develop at least one HAI and the total cost of HAIs is USD35-88bn annually. Moreover,
the National Institute of Health estimates that the death rate from HAIs in the 750,000
intensive-care patients who develop infections is 28-50%.
Breath analysers
Isomark, a US-based company has developed the Canary Breath Analyzer test that uses
a specimen of the patient’s breath to detect early-stage infections within two hours of
onset. The non-invasive test uses the reading of the carbon dioxide (CO2) present in the
patients’ breath to find changes in their metabolism by examining the carbon isotopes.
The company’s technology then interprets the results. The diagnostic test is also able to
detect early metabolism and immune system changes, according to the company. The
test does not depend on physical symptoms or immune response factors, and instead
searches for the acute-phase response which the body uses to counter the initial attack
by a pathogen.
Smart sutures
Smart sutures are surgical sutures that can monitor healing and alert the doctors about
any infections or adverse reactions at the wound site. John Rogers, Professor of
Materials Science and Engineering at the University of Illinois developed surgical sutures
coated with sensors that can monitor wounds and speed-up healing of the patients. The
sutures contain ultrathin silicon sensors integrated on polymer, which can be threaded
through needles. The sutures can measure the temperature around the wound with
elevated temperatures indicating an infection. Heat can then be delivered to the wound
site to aid healing. Similarly, researchers at Tufts have transformed sutures into sensors,
which can send signals wirelessly to doctors from inside the patient’s body. The sutures
are coated with a conducting material which can measure the stretching of the tissue, pH
levels, and body temperature. Any changes are monitored by a device worn by the
patient, which can send the data for analysis.
26
Technologies to improve operations

In the past, the healthcare industry has been relatively slower to adopt new technologies,
as compared with other industries. Even now, the key consideration for most hospitals
and healthcare organisations, when it comes to implementing new technologies, is its
impact on patient care. However, we see an increasing role for technology in helping to
improve and evolve hospital operations through:
• Increasing efficiency and reducing costs: As the use of technology becomes more
ubiquitous in hospitals, we see it freeing up doctors, nurses and support staff to spend
more time on treating and caring for patients, thereby increasing their productivity. The
use of robotic assistants and bed movers should also help to reduce work-place injuries
and fatigue.
• Branding and creating a point of differentiation versus peers: With private
hospitals focusing on major urban areas, we expect competition to increase in the
future. Given this, we believe the use of technologies such as Remote ICUs and Hybrid
operating rooms can provide a branding opportunity, and help hospital operators to
differentiate themselves from their peers.
• Predicting and forecasting: As data mining techniques continue to improve, we
expect an increasing use of predictive tools to help hospitals forecast demand, and
adjust their staffing requirements and capacity to reduce bottlenecks
• Providing new revenue streams: The use of telemedicine and patient monitoring can
help to treat patients with multiple chronic conditions at home or in intensive outpatient
care programs. This can help hospitals free up beds for more critical and revenue-
intensive cases while, at the same time, providing an alternate source of revenue.
Fig. 18: Major technologies being used to improve hospital operations

Technology Capital cost Operating Return on Benefits Major companies
costs investment Hospitals / Doctors Patients involved
Philips Electronics
Remote ICU High High Inova
RemoteICU
Hybrid
operating High High Getinge
rooms
Bed
McKesson
management Moderate Low
Infosys
tools
Intensive
outpatient care Moderate Low -
programs
Urgent care
Moderate Moderate -
centers
Robotic
Cyberdyne
nursing Moderate Low
Riken
assistants
Automated
inventory Moderate Low GE Healthcare
management
Electronic bed
Moderate Low -
movers
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Remote ICU – increasing the productivity of intensivists

Treatment of patients in intensive care units (ICU) makes up a significant portion of all
hospital costs, with studies showing that it accounts for about one-third of hospital costs
in the US. The quality of care in these ICUs is largely influenced by the presence of
critical care physicians, also known as intensivists. Studies have shown that high-
intensity staffing of intensivists (ICUs in where intensivists manage or co-manage all
patients) is associated with a 29% reduction in hospital mortality and a 49% reduction in
ICU mortality, along with a shorter length of stay for patients. However, due to a global
shortage of intensivists, we estimate that less than 10% of hospitals in Asia have high-
intensity staffing by intensivists in their ICUs. As the population in the region ages and
more people visit hospitals for treatment, we expect this shortage to worsen further. In
such a scenario, we see hospital operators in the region turning to remote ICUs to
maintain the quality of care for their patients.
At the turn of this century, remote ICU programs were introduced to provide continuous
intensivist management for all ICU patients despite the shortage of intensivists. Their use
was further fuelled by the continued development of telemedicine and the increasing use
of remote patient monitoring. As shown in Fig. 19, remote ICUs use an off-site command
centre where a critical care team of intensivists and nurses monitors patients in multiple
ICUs. The intensivists at the remote ICUs have full access to patient data and can also
see and talk to the patients and the nursing staff. These remote ICUs allow the
intensivists to order diagnostic tests, check for abnormalities in laboratory results, make
diagnoses and order treatment for the patients. Real time data from the patient
monitoring devices flag any critical changes in the patient’s vital signs or health to the
intensivist who can then alert the nurses at the ICU if the patient needs hands-on care.
While most remote ICUs are run through the day, they are especially useful at night,
when the hospital staff is at a minimum. The remote monitoring of the patients by an
intensivist, coupled with the presence of nurses at the actual ICU, helps to disperse the
patient monitoring load. Moreover, monitoring multiple patients at the same time
increases the productivity of the intensivists.
Fig. 19: Intensivists monitoring remote ICU’s
Source: Medgadget, Nomura research
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Remote ICUs associated with significant reduction in ICU mortality and LOS
While the impact of Remote ICUs varies from case to case, studies have shown that
remote ICUs lead to a significant decrease in ICU mortality and in hospital mortality. In
2011, the Journal of American Medical Association (JAMA) published a study conducted
at the University of Massachusetts Memorial Medical Centre. For the study, healthcare
professionals working remotely monitored 6,290 patients at the hospital’s ICU. The study
showed that the ICU mortality rate declined from 10.7% to 8.6% when they were
monitored by remote ICUs.
Similarly, studies have also shown that the use of remote ICUs can lead to reduced
length of stay (LOS) in the ICU, although there is not enough evidence to suggest
reduced LOS in the hospital for the patient. We believe that the lower LOS in the ICU is
directly tied to the reduced ICU complication rates, due to the presence of remote
intensivists throughout the day and night. Data from the JAMA study mentioned above
also show that the average LOS for patients in the ICU reduced from 6.4 days to 4.5
days.
Remote ICUs also provide a number of other internal and external benefits for healthcare
operators including: 1) efficient delivery of care as time and resources of the physicians
and nurses can be spent on primary care of the patients; 2) improved productivity of
clinical staff; 3) increased perception of quality of care by patients and families; and 4)
higher revenue intensity due to the additional costs for remote ICU monitoring.
High upfront cost is a challenge but is balanced by rapid payback
One of the biggest challenges for healthcare operators in adopting a remote ICU is the
significant capital cost coupled with high annual operating and maintenance charges.
Studies show that setting up a command centre can cost over USD2mn with operating
costs of over USD0.5mn annually. On the other hand, hospitals in the US that have been
able to make such investments have seen a short payback period of 1-2 years. Case in
point, the remote ICU system at the University of Massachusetts Memorial Medical
Centre cost over USD7mn and was paid back in full in approximately one year. Going
forward, we believe smaller hospitals will also be able to outsource their remote ICU
needs, and pay only an annual contract or fees per ICU patient.
The other major challenge that hospital operators can face is ensuring that doctors and
nurses physically present at the ICU understand and accept the role of the intensivists at
the remote ICU. Rather than replacing the nurses and doctors on the floor, the remote
ICU provides a supportive role and improves safety for patients through redundancy. The
intensivists at the remote ICU have an overview of the patients, and can thus help the
floor staff in treating the patients.
Remote ICUs lead to shorter LOS and higher-risk surgeries

According to Grand View Research, a US based market research and consulting
company, the global remote ICU market was valued at USD1.2bn in 2015. The market is
currently dominated by North America which accounts for around 60% of the total market
due to the availability of supportive infrastructure such as high-speed internet,
communication network, and training personnel. Moreover, the presence of top
telehealth service providers, especially in the US and the rising demand for home
healthcare and remote patient monitoring has boosted the growth of this industry in
North America. Going forward, the Asia Pacific region is expected to be the fastest
growing region, with a CAGR of 24% through 2024, according to Grand View Research.
Economic development in countries including China and India, along with supportive
government initiatives is expected to contribute towards regional growth. Moreover, the
growing electronic devices industry, especially human machine interface devices
industry in countries including China, Japan and Korea is expected to support the
adoption of remote ICUs.
29
Within the Asia Pacific region, we expect healthcare operators who invest in remote
ICUs to benefit from the shorter LOS for patients in ICUs, thus helping them to increase
the bed turnover rate. We believe this will result in two key benefits for hospitals: 1) it will
increase the revenue intensity of the hospital as it can help it attract higher-risk patients
and doctors performing high-risk surgeries, which are more likely to result in the patient
initially recovering in the ICU; and 2) the shorter LOS could in fact lower the cost per
patient for insurance companies. As private insurance coverage increases in the region,
we believe the availability of remote ICUs could increase the likelihood of coverage by
insurance companies.
Large hospital operators such as IHH Healthcare best placed to invest in remote
ICUs
Despite its benefits for patients, insurance companies and hospital operators, we believe
the high capital cost for setting up remote ICUs could be a stumbling block for most
hospital operators in the region. Given this, we believe that remote ICUs could emerge
as a source of differentiation and branding for hospital operators in the region. In
Singapore, we expect IHH Healthcare as best placed to invest in this technology. With
four hospitals in the country with a combined bed capacity of ~1,000 beds, we believe
the company can consolidate its remote ICU operations to serve all hospitals, thereby
reducing its payback period. Given Singapore’s proximity to Malaysia, the company can
also set up a consolidated remote ICU for its hospitals in both the regions.
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Hybrid OR: for minimally invasive and conventional surgeries

A hybrid operating room (OR) is an OR that is also equipped with advanced imaging
devices to enable minimally invasive surgeries along with conventional open surgeries.
The continued development of minimally invasive procedures has paved the way for
more patients to qualify for interventional procedures. However, these new patients often
have very complex medical conditions, and have a higher risk for poor outcomes. Thus,
there is a need for advanced imaging technologies, which can no longer be fulfilled
through the use of devices such as mobile C-arms. Many hospitals are starting to realise
the importance of advanced imaging devices inside the OR, which can allow for real time
image guidance to help surgeons assess the effectiveness of the procedure being done
and better manage any complications that may arise. This has led to an increase in the
use of hybrid ORs in North America and Europe.
The use of hybrid ORs also allow surgeons to diagnose and provide treatment to
patients during the surgical procedure. Moreover, they also provide surgeons with the
flexibility to quickly switch from a minimally invasive surgery to an open surgery if
required. Hybrid operating rooms are currently mainly used in cardiac, vascular and
neurosurgery, and we expect its use for orthopaedics and oncology specialties to
increase.
Fig. 20: An example of a hybrid operating room
Monitors Radiation
shielding
OR imaging table 3D C-arm
Fixed C-arm is the most preferred imaging system for hybrid ORs
Selection of the type of imaging system is one of the most important decisions when
planning a hybrid OR, with the most widely preferred imaging system being a fixed C-
arm. While the use of mobile C-arms would save space, they also have a number of
disadvantages including lower image quality, overheating which prevents their use in
longer or multiple surgeries and a smaller field of view. Fixed C-arms are generally
mounted either on the floor or the ceiling. Ceiling-mounted systems require ceiling space
and reduce the options for installing surgical lights and they can also bump into the
anaesthesia equipment when being moved. However, they are still preferred by many
hospitals as they can cover the entire patient body without moving the table and with
more flexibility.
31
The type of operating table is determined by the primary use of the Hybrid OR
Along with the choice of imaging systems, the other major decision while planning a
hybrid OR is the selection of the OR table, which is generally dependent on the primary
use of the hybrid OR. Interventional tables have a floating table-top to allow fast and
precise movements, while cardiac and vascular surgeons have less need for complex
positioning. Generally, the table is a compromise between the interventional and surgical
requirements such as a floating table specifically made for surgery, with vertical and
lateral tilts. Side rails can also be added for mounting surgical equipment like retractors
or limb holders.
Other important characteristics to be considered include the position of the surgical bed
in the OR, its compatibility and integration with the imaging devices with the operating
table, the table load, adjustable height and horizontal mobility. It is also essential to have
the proper accessories available, such as rails for mounting special surgical equipment
and a camera holder.
Hybrid ORs can improve revenue intensity and shorten LOS

The use of hybrid ORs for conducting surgeries provide a number of advantages to
doctors and hospital operators including:
• Improving revenue intensity: Hybrid ORs give surgeons and medical staff the
flexibility to shift seamlessly between different procedures without moving or
discharging the patient. This flexibility allows the hospitals to conduct complex cases in
house, thus increasing revenue intensity. This can also help hospitals attract surgeons
conducting such complex procedures.
• Reducing the length of procedures: Hybrid ORs allows multiple procedures to be
conducted on the patient during the same surgery, thus reducing the overall time spent
in the OR by each patient. Moreover, less invasive hybrid interventions also reduce the
length of procedure required to treat the patient. This improves the utilisation of the OR,
and allows the hospital to conduct more procedures in the same amount of time.
• Shorter length of stay: Conducting multiple procedures on the patient in one surgical
session reduces the overall recovery time for the patient, resulting in a shorter hospital
stay.
• Better diagnosis and surgical precision: Access to high-quality imaging during the
surgery allows surgeons to better diagnose the patient during the surgery, and improve
their surgical precision and efficiency.
• Better reaction to complications: Better imaging allows surgeons and medical staff to
react better to any complications that might arise during the course of the surgery
Thus, the use of hybrid ORs results in better quality of care for the patients through
shorter procedures, smaller incisions due to minimally invasive surgeries and less
trauma resulting in faster recovery and a shorter hospital stay.
Challenges include high costs and space requirements
Despite its many advantages for patients and healthcare operators, as detailed above,
we see a number of challenges to the more widespread adoption of hybrid ORs. These
include: 1) high cost: a hybrid OR would typically cost USD3-4mn which is nearly double
the cost of a standard OR. This is largely due to the expensive imaging equipment that is
required for the hybrid ORs; 2) space requirement: a hybrid OR requires 1,000-1,200
square feet of space, which is nearly double the size of a standard OR. The larger space
is needed to fit in the imaging equipment, control room and supplies; 3) lead time: a
hybrid OR needs over a year to be implemented after the planning stage; 4) training:
surgeons, nurses and other support staff and technicians need to be trained to ensure
safety and effectiveness of the hybrid OR. Despite these challenges, we expect demand
for hybrid ORs to remain strong in the medium term, due to the growing number of
patients with complex cardiovascular and neurological diseases who we believe will be
better served in this setting.
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Fig. 21: A hybrid OR can cost up to USD3-4mn

Surgical
Audio / visual equipment
equipment $0.1mn
$0.2mn
Life support
equipment
$0.3mn
OR equipment
$0.4mn Imaging
equipment
$2mn
Construction
$1mn
Source: Getinge, Nomura research
Early adopters can attract patients needing complex surgery

North America remains the largest market for hybrid ORs due to the extensive presence
of advanced healthcare facilities, and we estimate that the US alone accounts for over a
third of the total hybrid ORs globally. According to the ECRI institute, 75% of
cardiovascular surgeons in North America will be working in a hybrid OR by 2018F.
While we expect the North America and Europe markets to continue to grow, we expect
global demand to be driven by: 1) Asia: where we expect the highest growth rate driven
by the increasing use of robotic surgery, higher healthcare spending per capita, growing
medical tourism markets and increasing access to private healthcare. Within Asia, we
expect growth to come from Japan, China, India, Malaysia, Thailand and South Korea;
and 2) Latin America: which we expect should benefit from increasing government
spending on healthcare. We expect growth to come from the two largest markets of
Brazil and Argentina.
Within the Asia Pacific region, we expect healthcare operators who invest in hybrid ORs
to benefit from higher revenue intensity for their hospitals, as they will be able to attract
patients who need more complex surgeries. These hybrid ORs can also help hospitals
attract surgeons who would benefit from the flexibility to move seamlessly between
different procedures for their patients, if needed. Another major benefit for hospital
operators would be reducing the length of stay for such patients, and reducing the time
for these operations as multiple procedures can be conducted on the patients in one
surgical session.
Despite its benefits for patients, insurance companies and hospital operators, we believe
the high capital cost and space requirements could be a concern for hospitals. However,
we believe that these same challenges would also in turn benefit first-movers and early
adopters of hybrid ORs, as they would provide significant barriers to entry for peers. As
the number of patients with complex cardiovascular and neurological diseases rises, we
expect many hospitals with large cardiac and neurosurgery services to implement at
least one hybrid OR. We believe early-adopters of hybrid ORs can use these facilities to
differentiate versus peers. This could also help it to attract new patients and surgeons
resulting in a faster payback period and a higher return on investment.
In Singapore, we expect IHH Healthcare as best placed to invest in this technology. The
company has been investing in Hybrid ORs in its newly opened hospitals including the
Mount Elizabeth Novena hospital in Singapore. We believe IHH can also use this hybrid
OR for patients from the three other hospitals it operates in Singapore if needed.
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Bed management tools – to improve patient flow

Managing patient flow to optimise bed utilisation has a direct impact on the financials of a
hospital. The more time it takes to admit, diagnose and treat patients, the fewer the
number of patients the hospital can treat. Moreover, the longer a patient spends waiting
for a bed, the poorer is their outcome especially for patients in emergency departments.
To reduce wait times and improve patient flow, hospitals are increasingly using bed
management tools to aid in the allocation of beds and other services including
admissions, diagnostics, doctor visits, nursing care and treatment. Effective bed
management tools can help to optimise inpatient flow and reduce the risks of delays and
errors in patient admission and treatment.
Current bed management tools provide real-time visibility of patients
The earliest iteration of bed management tools focused solely on tracking bed availability,
and automatically alerting the personnel at the admissions desk, when a bed became
available. However, these programs did little to improve patient flow and instead resulted
in increasing the complexity of the hospital’s IT infrastructure and raising costs for
maintenance and training. The second generation of bed management applications,
currently in use are more patient focused and provide real-time visibility into the status of
the patients through an integrated interface. As the patients move through the hospital
system for tests, diagnostics and surgeries, their physical locations are tracked with the
use of radio frequency tags and proximity readers and updated in the central system.
These applications also provide real-time data about the patients to not just the doctors
but also the operational staff of the hospital to help them optimise patient flow.
To understand how bed management tools can improve patient flow, let us take a brief
look at how they work – When patients first show up to the hospital their data is entered
into the system by their doctor or attending nurse. This data includes basic information
including gender and also includes the triage, i.e. how urgent the case is. Once this
information has been entered, it triggers the system which analyses all the current bed
availability and their location in the hospital through radio frequency tags. This data is
then automatically evaluated by an algorithm that analyses all the pending bed requests,
the available beds and additional information including the distance the doctor might
need to take to visit his/her patients, to find the best possible bed locations. Based on
this, the nurse can then chose the bed most suitable to the needs of the patient.
Next-generation predictive bed management use data mining
Data mining is the process of analysing large data sets to identify patterns and predict
future trends. Going forward, as the volume of information available to the hospitals
increases and data mining techniques become more commonplace, we expect
healthcare organisations to increasingly use predictive tools for bed management. These
tools can help hospital staff to better allocate resources and optimise bed capacity by
accelerating discharges and removing unnecessary delays. These tools can also help to
improve patient care by reducing waiting times and ensuring that normal surgeries are
not delayed to make room for emergencies.
Most of the bed management tools currently available can interface directly with the
existing IT infrastructure of the hospitals. Some of the key features of predictive bed
management tools include: 1) providing both short-term and long-term forecasts based
on historical data patterns combined with statistical tools. This can help the hospital to
better manage staffing needs; 2) an alert system which informs the necessary
departments when the status of a bed changes. For instance, when a patient leaves
his/her bed en-route to being discharged, the system will immediately alert the
housekeeping staff to clean and sanitise the bed in order to reduce the waiting time for
the next patient; 3) identifying bottlenecks by comparing capacities across departments
and specialities. This can help hospital management to temporarily allocate resources
and staff to departments facing an increased patient load; and 4) easy and real-time
access to the data and solutions through dashboards. This allows the hospital staff to
easily monitor the status of beds and more effectively allocate resources where needed.
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Fig. 22: Predictive bed management application
Note: RN – Registered Nurse, MD – Medical Doctor

Source: SimTrack, Nomura research
Necessary features for a predictive bed management system

With predictive bed management platforms expected to proliferate going forward,
hospitals need to ensure that their platform includes a number of key features including:
• Data integrity: Given the vast amounts of data collected and processed by the system,
it is important to ensure the accuracy of the data. The system must also continuously
check for discrepancies in order to rectify any errors and improve the data collection
process
• Comprehensive data set: To enable the predictive system to do a proper analysis, it is
essential to ensure it is able to capture and process a comprehensive data set
including patient status and information, bed status and staffing needs amongst other
variables.
• Accuracy of predictions: The system should have a feed-back system to ensure that
it continually learns from the accuracy of its past forecasts to improve its predictions
going forward
• The ability to run simulations: The predictive system should also be able to run
simulations based on possible operational scenarios. This can help to anticipate future
issues including capacity blockages, so that the hospital can be better prepared to
handle them.
We expect increasing use of predictive tools in the region

Most of the hospitals in the Asia Pacific region continue to depend on bed management
tools that simply track bed availability. However, as data mining applications become
more commonplace, we see more and more hospitals switching to the use of predictive
tools for bed management and staffing. Along with reducing patient wait times and
improving patient flow, these tools can also reduce hospital costs by managing staffing
and opening and closing beds. An analysis by the Queensland public hospitals, showed
that they were saving USD2.5mn annually by using a predictive tool for patient
admissions. The financial returns from the tool were estimated to be USD80mn annually
including USD77.5mn from improved patient outcomes. Within the hospitals in the region,
we understand that IHH is exploring the use of bed management systems that use
algorithms to recommend room types for admission. We believe such a system can be
further improved upon in the future to include predictive tools.
35
Intensive outpatient care programs to reduce hospitalisation

Providing effective care to patients with multiple chronic conditions is one of the biggest
challenges facing most healthcare organisations. While they make up only 5% of the
total patients globally, these patients account for nearly 50% of the total healthcare
spending. While this proportion is currently lower for most Asian countries, we believe
that, as the population in this region ages and disease profiles shift, the share of patients
with multiple chronic conditions will rise to reach global averages.
The high costs associated with such patients can be especially onerous for large private
organisations that fund the medical costs of their employees, retirees and their families.
To improve patient outcomes and reduce unnecessary hospital use, these companies
are increasingly working with healthcare providers to implement ‘intensive outpatient
care programs’ (IOCP). The goal of these programs is to ensure that patients are cared
for at home by providing intensive, person-centred outpatient care. Patients who can
benefit from such a program are identified with the help of primary care physicians.
Fig. 23: Features of an intensive outpatient care program
Source: ‘Models of Care for High-Need, High-Cost Patients: An Evidence Synthesis’, D. McCarthy et al (The
Commonwealth Fund), Nomura research
36
One of the first such programs was started in 2009 by Boeing, which partnered with the
Pacific Business Group on Health (PBGH) on a pilot program which included about 700
people. This was followed by similar pilot projects by the California Public Employees
Retirement Scheme and the Pacific Gas & Electric Company. In 2013, PBGH received a
USD19.1mn grant from the Centers for Medicare and Medicaid Services (CMS), which
allowed it to expand its program to serve 15,000 participants across the US. An analysis
conducted by PBGH over a 30-month period for the CMS-funded program showed a
21% reduction in the cost of care for high-risk patients who had been enrolled for at least
nine months.
Dedicated care coordinators are an essential component of IOCPs
An essential component of the IOCPs is dedicated care coordinators who are embedded
with primary care physicians or medical groups. These coordinators are often nurses or
community health workers and medical assistants and must be able to rely on medical
supervision from the primary care provider or another physician. After the patients are
enrolled in the system, a care coordinator meets them to review their medical history and
to develop a plan for their treatment. The coordinator and the patient interact regularly to
build an ongoing relationship with the patients and work closely with them over time.
These coordinators also introduce the patients to relevant support services including
behavioural health and home health. In case of any need, the patients have access to
non-emergency department care providers at any time with follow-up with the care
coordinator.
Financing and identification of patients remains major challenges
Implementing an IOCP program requires investment in training staff, creating an
infrastructure for easy access to patient data and providing access to non-emergency
department care. However, this initial investment is expected to be offset by long-term
reductions in overall spending for medically complex patients. The other major challenge
is correctly identifying and assigning patients to the IOCPs. Some of the methods used
to identify patients include: 1) direct referrals from the primary care physicians; 2) use of
hospital records to identify patients; and 3) using analytic techniques including risk
stratification to identify such patients. After the patients have been identified, they must
be assessed by the care coordinators to ensure that they will benefit from the IOCP.
Added income option for operators with corporate client base

IOCPs are a relatively new concept even in the US and have largely been driven by
private organisations. Given the rapidly ageing population in many Asian countries,
combined with the weak public healthcare infrastructure, we see an increasing role for
the development of IOCPs in the region. Similar to the US, we see it being driven by
partnerships with healthcare organisations creating an independent segment for IOCPs,
which would then enter into contracts with large organisations to provide these services
to the employees and families. This would help to reduce the hospitalisation costs for the
company, while creating a new revenues segment for the hospital and freeing up beds
for the most important and complex cases.
In the region, we expect companies with a large corporate client base to take the lead in
setting up IOCPs. In Singapore, we see Raffles Hospital as well placed to work with its
major corporate clients such as the Ministry of Health, Singapore Power, Unilever and
Starbucks to set up IOCPs that can improve the quality of care for patients with chronic
diseases and reduce the overall healthcare costs for the companies. The company's
large network of clinics in Singapore should also be extremely helpful in identifying
patients who could benefit from such IOCPs.
37
Urgent care centres – reducing the load on ERs

Urgent care centres are medical clinics that are equipped to diagnose and treat a broad
range of illnesses and injuries that are not life-threatening. These centres primarily treat
injuries or illnesses requiring immediate care but are not serious enough to require a visit
to the hospital emergency room (ER), and act as a bridge between primary care
physicians and the ER. Most urgent care centres also have on-site radiology and
laboratory services and operate distinctly from an emergency department. These centres
generally include physicians from both family practice and emergency department,
although some also include doctors specialising in internal medicine. These physicians
are further supplemented by medical assistants, nurses and x-ray technicians. This
allows the centres to provide a range of services including fixing broken bones, treating
moderate cuts and lacerations requiring stitches, sprains, and minor head injuries.
Urgent care centres allow hospital ERs to focus on more critical patients
The biggest advantage of urgent care centres is that they help to reduce the crowding at
the hospital ERs by treating patients with non-life-threatening illnesses and injuries. The
New England Health Institute estimates that 56% of the ER visits in the US are avoidable
and three of the most common reasons for ER visits include sprains and strains, upper
respiratory infections and superficial cuts. Shifting the treatment of such patients reduces
the wait times for the other patients at the hospital ERs and allows the doctors and
nurses to attend quickly to health emergencies and focus on critical patients including
those most in need of interventional treatment. Focusing on critical patients can also help
to increase the revenue intensity of the patients being treated in the ERs.
Shifting to urgent care centres also provides a number of advantages to patients with
non-life-threatening illnesses, including: 1) shorter wait times of 30 minutes or less at
these centres as compared to considerably longer wait times at the hospital ERs; and 2)
lower costs as treatment at urgent care centres is significantly less expensive than that
at hospital ERs. This is especially important for patients suffering from chronic conditions
who need to visit their doctors regularly to ensure that their condition does not worsen.
Urgent care centres could be paired with medical centres

The first urgent care centre opened in the US in the 1970s and there has been a rapid
growth in their numbers since then. According to the Urgent Care Association of America,
there are currently nearly 7,400 such centres in the US with over 70% believed to be in
urban areas. The majority of the urgent care centres in the US are owned by either a
corporation or a hospital with over a third being owned directly by the physicians.
Following the US, most of the growth in these centres has come from Europe and
especially the UK, where it is also referred to as a walk-in clinic.
While we have seen little evidence of these urgent care centres in Asia till now, we see
four key factors that could encourage hospital and clinic operators to build urgent care
centres going forward: 1) we expect an increase in the use of hospital emergency rooms
as the population in the region ages and we see the growth of urgent care centres
reducing this burden by helping to treat patients with non-life-threatening illnesses or
injuries; 2) as the population in the region shifts from rural to urban areas, we see an
increase in wait times at public and private hospitals in urban areas and this can be
alleviated by the use of such centres; 3) rise in hospital admissions due to population
growth can be tempered though the presence of urgent care centres as they can help to
reduce admissions for non-life-threatening conditions by treating them early; and 4) a
shift in disease profile from communicable diseases to chronic conditions is expected to
increase hospital visits and we believe that these centres can help to treat most of these
patients in a cost-effective manner. In Asia, we see them starting in major urban areas
where they could be paired with large multi-specialty clinics or medical centres.
In Singapore, we see Raffles Medical as best placed to open urgent care centres given
its large network of clinics in the city and its two medical centres at Shaw Centre and
Holland Village. For Raffles, we believe the Holland Village mall could be ideal for
opening an urgent care centre given its location and the presence of the Holland Village
medical centre in the mall.
38
Robotic nursing assistants – to help with nursing shortages

As the population in Asia ages, we expect an increase in the number of people visiting
hospitals for treatment. At the same time, we are seeing a global shortage in the number
of nurses and other healthcare staff, with this shortage being exacerbated in Asia due to
a number of qualified nurses moving to Western countries for employment opportunities.
A case in point is Singapore, where the government believes that the healthcare sector
will need 9,000 additional healthcare workers, including nurses, between 2017 and 2020
to care for its aging population.
The current shortfall has led to an increasing patient-to-nurse ratio, putting increasing
pressure on the nurses who are tasked with continually monitoring patient safety and
care. This can become even more intense during nights and weekends, when the
nursing staff is at a minimal. According to a study by Aiken et al, published in the Journal
of the American Medical Association (JAMA) in 2002, each additional patient per nurse
was associated with a 7% increase in patient mortality and a 23% increase in nurse
burnout. Additional studies have suggested that lowering the patient-to-nurse ratio would
result in less missed patient care. One of the ways to lower this ratio is to use robotic
nurses and robotic nursing assistance to help the nursing staff in its duties.
Fig. 24: Robotic nursing assistant helping with patients in Japan
Japan has pioneered the use of robotic nursing assistants

With nearly 30% of its population over the age of 65 years and a low birth rate, Japan is
expected to be particularly impacted by the growing shortfall of nurses and healthcare
staff in its hospitals. In 2010, Japan needed 2.0mn professionals to care for the elderly
but fell short by 0.7mn. If the demographics trend continues, this shortage will grow to
1.4mn by 2025. Given this, Japanese hospitals have pioneered the use of robotic
nursing assistants with the Machine Industry Memorial Foundation estimating that the
use of robots for the care of Japan’s elderly could save the country about ¥2.1tn
(~USD18bn) annually. Japanese companies have developed several robots to address
different needs in healthcare. The ‘Robot for interactive Body Assistance’ or RIBA is a
robot that can lift a person weighing up to 60 kilograms and move them to another
location. RIBA’s arms have tactile sensors to prevent slipping and it is also equipped with
cameras and microphones that allow it to follow the directions given by an operator.
39
Robot assistants help nurses devote more attention to critical patient services
The robotic nursing assistants currently being developed are autonomous, agile, highly
mobile and stable with the ability to self-navigate. These robotic assistants can perform
routine patient surveillance, patient care and support tasks, allowing nurses to devote
extra attention to more critical services for patients. These robotic assistants can also
enhance the ability of nurses to detect potential patient problems and complications early
and prevent small problems from escalating further.
In a hospital, robotic assistants can be made to visit each patient room on preassigned
rounds to monitor patients for any alerts while ensuring medication compliance. This can
allow the nurses to focus on administrative functions and patient compliance, thus
helping the hospital yield healthcare savings, result in greater patient compliance, reduce
errors due to fatigue and distractions, leading to better patient care. These assistants
can also be used at home or assisted living facilities for elderly patients or patients with
chronic conditions.
Robotic nursing assistants can also be used by physicians and nurses to remotely
communicate with patients through audio / video interface. This can be especially useful
during outbreaks of contagious diseases or when patients are in quarantine. Use of the
robots can reduce the risk of infection for nurses and other hospital staff, prevent the
handling of contaminated materials and minimise exposure to contagions and other
biohazards.
Robotic exoskeletons to help nurses lift patients easily
Another major technological development for nurses is the creation of robotic
exoskeletons for nurses to allow them to lift patients without injuring their backs. Studies
have shown that in Britain’s National Health Services over 80,000 nurses injure their
backs at work annually with 3,600 nurses forced to retire early. To address this issue
companies are developing robotic devices that strap onto the wear’s limbs and helps
them to lift heavy objects including patients.
The robotic exoskeleton generally contains sensor pads that calculate how much force is
needed to pick up patients. As the nurse lifts the patient, she is aided in this process by
the robotic exoskeleton, which provides support and reduces the actual effort she has to
make to lift the patient. This reduces the stress on the nurse and prevents back injuries
and other muscular skeletal injuries.
Fig. 25: Robotic exoskeleton to helps nurses lift patients
Source: Cyberdyne, Nomura research
40
Automated inventory management to reduce waste

Hospital supplies are a major source of inefficiency and excess costs for most hospitals.
While managing their inventories of drugs and medical devices, hospital administrators
have to ensure that there is enough supply to meet demand from doctors and patients
but not so much that it significantly increases costs or consumes space. Moreover,
healthcare organisations also need to ensure strict quality standards, which are often
mandated by the government regulatory authorities. A defective medical device or
expired drugs can comprise patient care and lead to irreparable damage to the hospitals
brand and even punitive action from the government.
In order to deal with these issues, most hospitals have increasingly adopted healthcare
supply management systems. However, the current management systems used are
generally complex as the healthcare supply chain is extremely fragmented with hospitals
using a number of different items every day, each of which comes from different
organisations. Moreover, during surgeries several numbers of the same items and
devices such as needles, surgical scissors and forceps are used, further complicating
the management system.
We see an increasing adoption of automated inventory management systems
In order to streamline their supply chain and reduce wasteful spending, we see hospitals
increasingly adopting automated inventory management systems. In such systems, drug
inventory and medical devices used are tracked through the system. This can be done
through the use of technologies such as barcodes and RFID tags with unique
identification numbers, which allow for precise tracking and management of each item.
Scanning the barcodes of each item before their use ensures that the inventory is
correctly updated and reflected in the system. Moreover, the tracking of medical
instruments also helps to reduce loss and theft.
An automated inventory system can also help management identify drugs and devices
that are more frequently used and alert staff to potential shortages ahead of time. These
systems also let the hospital management set the minimum acceptable inventory levels
for each item, with the system automatically placing an order when such a limit is
reached. This allows the hospital to keep a relatively lower inventory of each item as
compared to manual ordering.
Along with eliminating waste and shortages, automated inventory systems relieves
nurses and medical support staff from managing the supply chain and frees them up to
attend to patients and other activities. Another major advantage of the automated
inventory management systems is that they can also alert the hospital authorities to
drugs and devices that have been recalled or damaged. This ensures that such products
are not used to treat patients as they can be harmful to their health.
Data collected can be used to forecast demand more effectively and further reduce
costs
The drug and device data collected by the automated inventory management systems
can be analysed to better understand the inventory use, maintenance needs and waste.
This can allow hospital operators to forecast demand more accurately and modify the
minimum acceptable inventory levels for each item. This can further reduce costs
associated with unnecessary stocking. This data can also be used by hospitals to
schedule maintenance activities and anticipate when new drugs or devices will be
available.
41
Electronic hospital bed movers can reduce workplace injuries

One of the biggest sources of inefficiency in hospitals is the daily transportation of
patients from their wards to other departments such as radiology or to the operating
theatre, since this generally requires two persons – a nurse to steer the bed and a porter
to push it. This can often lead to delays as patients wait for porters to transport them,
resulting in lower productivity. Moreover, due to the size of the bed and the patient, this
task is also physically demanding and can often lead to work-related injuries, including
muscular skeletal injuries for the hospital staff. To improve productivity and reduce
workplace injuries, hospitals are increasingly using electronic hospital bed movers, as
shown in Fig. 26.
Fig. 26: Electronic hospital bed movers in action
Electrical hospital bed movers are generally small and compact to allow them to fit inside
elevators along with the beds and for increased manoeuvrability. They typically have
extendable arms that attach to the legs of the bed. This eliminates the need to lift the bed
onto the bed mover, thus improving the safety for the porters. It also provides flexibility to
the hospital operators when buying new beds. Most of the electric bed movers have a
capacity of over 600 kilograms and provide a quiet operation and smooth movement for
increased patient comfort.
Newer innovations include wireless controlled bed movers
As innovation continues, we are now starting to see increasing use of wireless controlled
movers, which allow porters or nurses to move the bed, while walking behind or beside it
through the use of a remote controller. This controller allows them to steer the bed,
adjust speed and bring it to an emergency stop. Some controllers also include joysticks
for additional manoeuvrability. Bed movers are also being developed with anti-microbial
paint to allow it to be easily cleaned and aid in infection control.
We expect increasing use in Asia as universal electric movers are deployed
Despite its advantages of increased productivity and lower workplace injuries, we have
seen limited use of electric bed movers till now. This is mainly because earlier electric
bed movers were not compatible with all the different types of beds and stretchers used
by the hospital operators. However, with the development of more universal electric bed
movers, we have started to see increasing penetration in hospitals in the US and Europe.
Going forward, we see increasing use of these electric bed movers in Asia led by
hospitals in China, India, Malaysia, Thailand and Singapore.
42
Lessons from the evolution of the Japan pharmaceuticals & healthcare
Japanese healthcare system Kyoichiro Shigemura - NSC

+81 3 6703 1118
Japan's healthcare system and infrastructure have made

great strides while adapting to the shift to a super-aged
society
In Japan, the world’s most rapidly aging society, various policies are being adopted to
control the rising cost of medical care. Japan has built up operational expertise in
healthcare treatment and long-term care services within the framework of such schemes
as universal health insurance and long-term care insurance. Against the backdrop of
government attempts to clamp down on rises in spending on healthcare and long-term
care, we think that companies that have made it through the shakeout and realignment
process will be able to achieve long-term growth by applying their expertise in Japan's
super-aging society to cultivate emerging markets, for example, where we expect coping
with aging populations and expansion of the medical infrastructure to be the key
challenges from now on.
Fig. 27 shows Japan's healthcare expenditure alongside its number of hospitals. We
note that, while healthcare spending is growing, the number of hospitals is on a
consistent downward trend. This is because, as a result of government policy, hospitals
have come to focus on surgery and admissions or rehabilitation, while outpatient
healthcare has been shifting more to clinics and home-based care. In recent years,
inroads have been made in building comprehensive regional care systems that provide
care according to the patient's situation, with hospitals used for surgery and inpatient
care, and follow-up treatment offered at clinics, pharmacies, or at home once patients
have been discharged.
Fig. 27: Healthcare costs rise while number of hospitals declines → healthcare efficiency being improved through promotion
of comprehensive regional care systems and use of ICT
(¥ trn) National medical care expenditure (LHS)
45 No. of hospitals (RHS) 9,800 Building of comprehensive
regional care systems is
40 9,600 proceeding apace
35
9,400 ・Links between hospitals and
clinics, homes, and long-term
9,200 care
30
9,000
25
8,800
20
8,600
15 Robotics
8,400
10
8,200
5 8,000 ICT AI
0 7,800
1997
2014
1990
1991
1992
1993
1994
1995
1996
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2015
Source: Nomura
43
What enables hospital numbers to fall while healthcare costs

rise? → Comprehensive regional care systems and adoption
of ICT in healthcare
Put another way, the falling number of hospitals despite rising healthcare costs means
that care is being provided more efficiently through the building of a more advanced
acute healthcare infrastructure and by creating medical information links beyond
hospitals (clinics, for example). What has made this possible is both policy efforts at the
local authority level to build comprehensive regional care systems, and also the adoption
of the healthcare x ICT model that involves creating local health and medical care data
networks to enable patients (consumers) to receive medical or long-term care services
appropriate to their health conditions.
What is a comprehensive regional healthcare system?
The comprehensive regional care system concept refers to the mechanism that provides
support in the areas of housing, medical care, long-term care, preventive care, and
lifestyle, to enable elderly people to carrying on living their own way in familiar
surroundings until the end of life, even if they come to require high levels of care. The
Ministry of Health, Labour and Welfare (MHLW) aims to roll out the comprehensive
regional care system by 2025 when Japan's baby boomer generation will be 75 or older.
Fig. 28: Overview of the comprehensive regional care system
Medical care Daily life Long-term care
Long-term Areas 24-hour regular/need-based

Comprehensive where people lead their home visit services
Long-
management daily lives term care
Administrative organization (eg junior high school
Comprehensive regional care catchment areas) Combined service
Day care
General acute-care Medical Home medical Home visit long-
hospitals care term/nursing care
care
Home visit
High-level acute-care nursing care
hospitals
Family doctors Housing
Comprehensive Home care doctors Own home
regional care wards Creation of
(hospital)
Assisted senior housing
medical and
Recovery/rehabilitation Family pharmacies
Family pharmacist
health
wards (hospital)
information
Convalescent databases/
wards (hospital)
Long-term networks
Living Resident/senior citizen care
support clubs, neighborhood preventive
Community healthcare associations, NPOs, etc
concept
(high-level acute phase, acute phase,
recovery phase, and chronic phase)
Community medical Health support pharmacies

support corporation Home convalescence
support clinic On-premise pharmacies
New type of medical Bases linking
Home specialist clinic
facilities hospitals/clinics/long-term
End-of-life care
Free access limited care
Source: Nomura
44
Healthcare x ICT crosses the barriers between medical care,

long-term care, and preventive/presymptomatic care
We think the use of healthcare and ICT can promote a shift in Japan's healthcare policy
from its current focus on disease prevention, health management, and the prevention of
serious illness aimed at reducing and controlling medical costs to the promotion of more
effective use of limited professional resources, such as doctors and nurses, and
productivity improvements (or reduce the burden on healthcare professionals) that will
raise the sustainability of Japan’s health insurance system. The groundwork for the
healthcare industry’s more widespread use of ICT has been laid recently, including
preparation of better communications infrastructure. We think greater use of ICT in the
healthcare area will contribute to more efficient and higher-quality medical care, helping
to deliver the cures and care needed by the Japanese people while also promoting
disease prevention and the improvement of treatment at the pre-symptomatic stage
(known in Japanese as “mibyou”, indicating the stage when a person displays no
symptoms of a specific disease but is experiencing various physical ailments that
indicate the need for a healthier lifestyle, diet, etc). This combination of healthcare and
ICT therefore has the potential to extend the healthy lifespan of Japan’s aging population.
Fig. 29: Diffusion process of healthcare x ICT in Japan; from EMR to EHR and PHR
EMR EHR PHR

(Electonic medical records) (Electronic health records) (Personal health records)
Data usage
venues
1970s 1980s 1990s-2000s Since 2010
Departmental
In hospitals systems In-person consultations Remote consultations (telecare)
and clinics Interdepartmental
systems
Electronic records Diagnosis based on AI use

Outside hospitals (treatment support) experience, skills
and clinics
Treatment + Regional coordination By
nursing care
humans
Robot treatments
Coordination w/
personal data
Medical facilities & pharmacies ⇔ home ⇔ care ⇔
At home, Kept within hospital/ preventive / presymptomatic
personal medical facilities
preventive Utilization of personal data
usage
Separation between self-medication
and medical treatment
Service platforms
Tight medical/long-term care finances lead to policies

promoting full-fledged use of ICT
Digitization Use of networks Big data usage
Source: Nomura
45
Past, present, future of healthcare x ICT; from EMR to EHR

and PHR
The history of healthcare x ICT is also the history of the spread of ICT in the medical field.
The process has not taken place overnight.
1) 1970s: introduction of departmental IT systems to raise operational efficiency of
medical office work, image management, testing, etc.
2) 1980s-90s: standalone electronic medical record (EMR) systems introduced to
improve operational efficiency of hospitals and clinics, resulting in increased sharing
of in-hospital treatment processes. The introduction and spread of information
transmission systems (ordering systems) used for testing, prescriptions, etc,
contributed to greater operational efficiency throughout hospitals.
3) 2000s: shared electronic health record (EHR) networks came into widespread use,
leading to greater information sharing beyond the walls of the individual facility to
other hospitals and clinics. Regional medical information networks began to appear.
4) Since 2010: appearance of personal health record (PHR) services that enable
individuals to manage their own medical and healthcare data. Development of
regionally inclusive care systems, comprehensive information networks with
information on medical treatment, long-term care, disease prevention, and
presymptomatic care, as well as related applications
Future prospects: we expect the use of ICT will continue to spread throughout all
healthcare areas, from treatment in hospitals and clinics to comprehensive regional care
systems, and to in-home and long-term care, promoting efforts to improve individual
health management and treatment in the presymptomatic stage.
Focus on four themes

As greater use of ICT in healthcare fosters a shift from EMR to EHR and then PHR, the
role of hospitals no longer stops with the diagnosis and treatment of patients that have
fallen sick. Indeed their role is increasingly to ensure that patients (ie, the general public)
can receive appropriate care in the right place by linking primary care data at local clinics
with home-based and facilities-based care data, and, when necessary, to obtain lifestyle
data from outside the hospital in order to ensure that they provide patients with the
optimum diagnosis and treatment. As a result there is a growing need to build data
networks both inside and outside hospitals, make use of big data, and provide highly
cost-effective medical care.
We expect the emergence of new businesses that is already under way and further
regulatory liberalisation to lead to the rise of new markets based on four themes: (1)
telecare, or remote consultation with doctors and other medical professionals; (2) greater
use of AI; (3) robot-assisted treatment; and (4) service platforms. These themes are
discussed in detail as below.
46
#1: Telemedicine
Telecare: 15-second snapshot—summary and conclusions
★FY18 revisions to medical treatment reimbursements are likely to attach more value to
remote treatment (telecare). If only phone-based follow-up consultations are shifted to
telecare, it would amount to a ¥540bn market.
Medical Practitioners’ Act,
★ MRT and several unlisted companies are developing telecare platforms and models Article 20: In-person treatment
for facilitating appointments, treatment, and drug prescriptions. This article states that “No
★ M3 and MedPeer are focusing on fee-based remote treatment consultations with medical practitioner shall
models that may facilitate customer and revenue management. provide medical care or issue
a medical certificate or
Telemedicine industry expected to support more effective use of healthcare prescription without personally
resources and provision of regionally integrated care performing an examination,
Healthcare expenditure continues to rise as the Japanese society becomes super-aged, nor shall he/she issue a birth
heightening the need for measures to control the rise of such expenses and for more certificate or certificate of
efficient management of medical facilities. We think telemedicine has considerable stillbirth without personally
potential as one way to provide healthcare services more efficiently. Recognising the being in attendance at the
potential for the growth of telemedicine, numerous venture companies have begun birth, nor shall he/she issue an
developing telecare services for patients. The use of telecare methods could receive a autopsy certificate without
boost from forthcoming revisions to medical treatment fees in FY18, as the Japanese personally performing the
government may introduce a treatment reimbursement system for telecare services autopsy.”
similar to that for in-person consultations. We therefore expect to see the steady
development of a telemedicine industry in Japan.
Rough estimate of the potential size of the telecare market
According to a 2015 report concerning healthcare use in industrialised nations of the
OECD, the number of annual doctor consultations per capita is 12.9 in Japan, versus the
OECD average of 6.6. Assuming that greater uptake of telecare causes hospital visits in
Japan to fall to the OECD average, we can calculate the incidence of remote diagnostic
sessions by subtracting 6.6 from 12.9 and multiplying the result by roughly 120mn
people, yielding approximately 756mn remote sessions. Multiply this by the 72-point
(¥720) reimbursement for follow-up consultations by telephone, and we calculate a
market of ¥540bn or so solely for the use of telecare in place of phone-based follow-up
consultations. We also include in the market for telecare the fees earned by companies
providing the necessary platforms and systems. Diagnosis and treatment apps represent
a new business opportunity that supports telecare and therefore will support the
formation of this new market.
Looking at overall healthcare expenditure, it may appear we simply assume that face-to
face follow-up consultations will be supplanted by telecare. However, we also envision
the following positive effects from the rise of telecare: (1) if hospitals promote outpatient
care (including telecare), large hospitals should operate more efficiently (creating more
opportunities to perform surgeries, etc) and the number of hospital visits should
decrease, which in turn should (2) facilitate ongoing management and prevention of
lifestyle-related diseases, and (3) minimise the interruptions of work and daily activities
caused by consultations.
Regulations on telemedicine and deregulation moves

Telemedicine and telecare reimbursements
Under Japan’s current medical fee system, treatment reimbursements for telemedicine
include points for diagnostic imaging management type 1 (70 points; 1 point = ¥10), for
diagnostic imaging management type 2 (180 points), and for follow-up consultations (72
points, including for telephone consultations). The points for diagnostic imaging
management arise in DtoD cases that meet certain conditions, such as a clinic or other
institution sending imaging data to a hospital for diagnosis. For DtoP telecare,
reimbursement for follow-up consultations is available, but many fees cannot be added
on at the same time, including fees for specific disease treatment management and for
night or holiday paediatric treatment in cooperation with local communities.FY18
revisions to medical treatment reimbursements are expected to include additional
medical administration fees partly for telecare.
47
Companies providing telecare-related services

Fig. 30 shows the major companies offering services related to telecare in Japan.
Companies such as MRT and Medley provide telecare itself. As of 9 February 2017,
MRT had registered 169 medical institutions for its regular telecare services. Medley's
CLINICS service enables patients to receive video-chat diagnosis from over 200 medical
institutions nationwide and pay for treatment online.
Fig. 30: Companies providing telecare and telemedicine consultation services

Telecare or
Code Company Service name Notes (1) Notes (2)
consultation
Building telemedicine platform for case
Developing new services using visual
Telecare - conferenceservices sharing medical record and
communication
imaging data
2413 M3 Remote gene Counseling using telephone or web conference Collaboration with family doctors for ¥15,000/30
Telemedicine counseling systems with clinical genetics specialists min, including second opinion function
consultation
Monthly fee of ¥324 for an unlimited number of
AskDocotors Doctors answer patients' questions
questions
Uses proprietary imaging technology to Collaboration with Secom's data centers and
Mobile telecare
9735 Secom Telecare reproduce the color of the patient's complexion EMR systems to compare with past imaging
system
and diseased areas for visual diagnosis data to track a condition over time
Telemedicine Patients can choose doctors and times to make

Pocket Doctor Up to 10 minutes per session, ¥2,980-3,980
consultation appointments for consultation
6034 MRT
Family doctor Follow-up consultations using video phone
Telecare Patients can use the system free of charge
services systems
Telemedicine
6095 MedPeer firstcall Online medical consultation platform ¥1,980 for 15 minutes
consultation
Remote Developing remote diagnostic imaging Has more than 400 radiologists. Diagnoses of
Noritsu
7744 radiography Doctor Net diagnosis, image analysis, and cloud-based images received by 18:00 are submitted at 12
Koki
service image storage services noon the following business day.
Compatible with various treatment items

Telecare solution providing full service from
including smoking cessation outpatient services,
reservations through video chat diagnosis,
Unlisted Medley Telecare CLINICS pediatric outpatient services, diabetes outpatient
payments, and pharmaceutical prescriptions via
services, and other ongoing treatment and
the web
monitoring
Experimental telecare projects under way in

Mera and Nichinan in Miyazaki Prefecture;
Unlisted Port Telecare Port Medical clinical research in telemedicine for hypertension -
in collaboration with Tokyo Women's Medical
University
Research support, Aiming to increase accuracy and efficiency of

Remote image IMACEL medical diagnostic technology via R&D on medical Collaborating with remote image analysis
Unlisted Lpixel
analysis system imaging analysis imaging analysis system utilizing proprietary AI services, etc
system Eirl software
Source: Nomura, based on company data
Port is working on joint clinical research with Tokyo Women’s Medical University on
telecare for hypertension. This study uses a special app to automatically send data
measured by the patient using a specialised blood pressure monitor. Specialist
physicians use this data for consultation with the patient via chat or video conferencing
within the app.
In telemedicine consultation services, M3 leads the market with its AskDoctors service,
which allows patients to ask doctors questions on the web. Over 5,000 physicians field
patients’ questions on the website, and at least 99% of questions are answered within 24
hours. Other companies’ services that involve consultation between doctors and patients
include firstcall, acquired by MedPeer in July 2016, and MRT's Pocket Doctor app for
sharing weight and blood pressure data.
48
# 2: AI – diagnosis support, drug

discovery support, behaviour prediction
AI x healthcare: 15-second snapshot—summary and
conclusions
★ The medical-related AI market (drug discovery, operation support systems) is
expected to expand rapidly from ¥3.7bn in 2016 to ¥15bn in 2025 (Fuji Keizai).
★ Watson has pioneered the introduction of AI in the medical field globally, but
Japan’s KIBIT AI technology is approaching practical realisation in healthcare.
★ AI x healthcare market: opportunities for adding substantial value through m3.com

with (1) services and solutions including sales support for human medical
representatives (MRs) and (2) risk analysis and special features tailored to
physicians and hospitals relating to medical conditions and surgical operations.
Fig. 31: AI's capabilities: a roadmap
【Phase 1】【Phase 2】【Phase 3】
Worldwide deployment of
Construction of Japanese ICT integrated community care system
Japanese ICT integrated A society that enjoys healthful
by utilizing advanced electronic health records (EHRs)
community care system
life and longevity
- From treatment medicine to
Telemedicine and Complete medical checkup Personal healthcare advanced preventive medicine
home medical care at home concierge
AI-assisted medical examination ■ Comfortable health control

and suggestion of prescription Advanced individualized / AI-assisted early detection,
candidates grouped medical examinations treatment, and prevention
■ Designing your own body
of disease and illness
Collection of everyday health Constant health monitoring
data
■ Easy use of advanced
service Providing a variety of
functional foods customized medicine
to the health condition
of an individual ■ Personal robots
Prepare and organize data on health, medical care, and welfare
AI-assisted drug discovery Development of drugs having a great effect on specific

constitutions and symptoms with biomarkers and DDS
Organ transplants,
regenerative medicine Replacement of body functions with artificial organs
Care facilities
with installed sensors Nanorobots that work inside the human body
Smart operating room with robots Surgical robots capable of simulating

capable of supporting diagnosis behavior of a skilled surgeon
using AI to assist surgical
procedures
Robots that provide walking

assistance, supervision, and Robots that understand a person’s intentions
support through conversation
Source: Nomura
49
The potential in AI
In the healthcare field, we expect the use of AI to help simplify procedures with medical
treatment and long-term care, reduce the burden on medical professionals and care
providers, and improve the quality of life (QOL) of patients. With the evaluation of
medical images and in drug development and operating theatres, for example, we expect
new diagnostic and therapeutic methods to be identified by using AI to accurately and
quickly draw on the knowledge of a vast number of forerunners available in such forms
as academic papers and treatment data. As diagnostic support with AI advances, it
should free up physicians and caregivers to spare time for the treatment of and
communication with patients or care recipients (even if physicians or other professionals
still need to make diagnoses or other judgments). Measures to alleviate risks of falls or
prevent patients wandering off by projecting the behaviour of dementia and other
inpatients are already being implemented. Fig. 31 shows the part of the AI roadmap
produced by Japan’s New Energy and Industrial Technology Development Organization
(NEDO) that relates to the healthcare field. Initiatives have already been started in areas
indicated under "Phase 1," including AI-based diagnostics support, drug discovery
support, and smart operating rooms.
Commercialisation of healthcare x AI: setting six priority

areas from Watson utilisation to insured medical AI
Progress has been made in using AI in the healthcare field in the US in such areas as
diagnostic support utilising IBM's Watson. Watson is being used to provide cognitive
assistance with a variety of healthcare services.
Fig. 32: Watson's increasing usage in medical and healthcare fields

Theme Party introducing Watson
Memorial Sloan Kettering Cancer Center (MSKCC)
Tie-ups with medical institutions Cleveland Clinic
Mayo Clinic
Genome treatment The New York Genome Center

support University of Tokyo's Advanced Clinical Research Center
Cancer treatment advisor technology
Use of therapeutic data Apple
Development of Johnson and Johnson

medical equipment Medtronic
Drug discovery
Pfizer
research support
Source: Nomura
In Japan, various initiatives are using IBM's Watson

Watson has already begun to introduce MR support services, such as providing medical
information through a call centre support system for pharmaceutical companies in Japan.
This collects information on drug package inserts and interview forms (from healthcare
professionals meeting the "let Watson learn" requirements) and provides appropriate
responses to operators in call centres. In academia, the University of Tokyo's Advanced
Clinical Research Center has introduced Watson Genomic Analytics. With this, it rapidly
analyses enormous amounts of genetic information, finds cancer-causing gene
mutations, and has begun to explore the possibilities of effective treatment methods.
Otsuka Pharmaceutical is using Watson to develop tools for specialist hospitals in the
psychiatric field.
50
National initiatives to utilise AI

AI is also important for various initiatives in the government's medical ICT policy. In its
Growth Strategy 2017, the government identifies five key pillars for building health,
medical, and long-term care systems. Of these five, we see good prospects for the
application of AI in four. In particular, building a data platform will require a foundation for
the use of AI.
In parallel with the formulation of a future investment strategy, the MHLW established an
advisory body for the reform of data-based health management in January 2017, aiming
to promote the creation of big data on health and medical/long-term care information.
This body published a report in June on the benefits of using AI for patients and citizens
with the advent of deep learning.
Six priority fields for promoting the use of AI
The AI report presents a roadmap that highlights the strengths of current technology and
sets out six priority areas to tackle with transitions targeted for 2020. As areas where AI
is expected to be brought into use relatively quickly, the report notes the four areas of
genome medical treatment, image diagnosis support, diagnosis/treatment support
(medical examinations by interview, general examinations, etc), and pharmaceutical
development. As areas where initiatives toward the practical use of AI could be pushed
forward in stages, it notes long-term care/dementia and surgical support.
Benefits anticipated from growing utilisation of AI
Areas where there are high hopes for the use of AI in the healthcare industry, beginning
with genome-based medicine and drug discovery, include (1) creating new diagnostic
and treatment methods, (2) establishing an environment able to deliver state-of-the-art
medical care anywhere in the country, (3) reducing the burden on medical professionals
and care workers so that they can concentrate on the treatment of patients.
The area in which private-sector companies are involved is (3) a genome analysis and
cancer knowledge database. Regarding genome analysis, Takara Bio is conducting a
draft sequence analysis using next-generation sequencers, but at this point AI has not
been used. Fronteo has been developing an AI system for the personalised treatment of
cancer. The company aims to promote the uptake of Japan-initiated AI using its own AI
system called KIBIT.
Fronteo's initiatives to make full use of Japan-originated AI

Fronteo has developed its AI system through its business-focused legal technology and
it has begun to apply it to healthcare fields such as diagnosis support and long-term care
support (Fig. 33).
Development of KIBIT, made-in-Japan AI: analysis of difficult language data and
tacit knowledge through eDiscovery
Fronteo has been undertaking data analysis with eDiscovery (electronic discovery) in the
legal field. eDiscovery involves quickly and accurately identifying relevant documents
from among a huge volume of electronic documents. Fronteo has undertaken research
into machine learning and natural language processing. In 2012 it developed KIBIT, a
proprietary AI system (called Predictive Coding) that can identify subtle differences in the
nuances intended by humans even in apparently similar verbal data based on the
relationships between people and organisations.
The key feature of KIBIT is its use of "landscaping" technology (a core technology
pioneered by Fronteo) that can extract and interpret important pieces of tacit knowledge
(small amounts of training data) and use AI to project and predict the vast abstract
knowledge landscape (big data) this understanding entails. This is very different from AI
based on the continuous analysis of big data itself. KIBIT is an AI engine that is easy to
put to practical use even without a system that can constantly analyse big data.
51
Fig. 33: Use of Fronteo's AI in the healthcare field

Product Practical
Num ber of people Planning Research
Field Project nam e developm ent realization
covered state stage
stage stage
Forecast number
AI system for the personalized
of cancer patients
treatment of cancer
About 1,010,000
Devices for the objection Forecast number of patients
Diagnosis
evaluation w ith mental illness
support
of mental illness About 1,880,000
Number of patients
AI system for pain diagnosis
w ith chronic pain
support
About 20,000,000
Number of inpatients
Fall prediction system
About 1,320,000
Forecast number of patients
Healthcare Job assistance system w ith mental illness
support About 1,880,000
Number of new -graduate
Staff retention system recruits leaving jobs
About 260,000
Number of listed drug
Drug monitoring support under price criteria
About 17,000 points
Pharmaceutical Main ethical drug
industry Paper analysis support manufacturing and sales
support companies; 115 (FY2015)
Number of pharmaceutical-
Support to improve MR
related companies
effectiveness
3018 (FY2015)
Health information media service
November 2015 start
Healthcare Kenjo Jiman
information Health screening reservation Number of people
support service receiving health screening
Your Dock 3,230,000
Note: Picture shows Kibiro, Fronteo's KIBIT-powered robot. No. of people covered is from company data.
Examples of use of KIBIT (practical use/initiatives to broaden

awareness of Japan-made AI)
AI system for the personalised treatment of cancer
On 31 January 2017, Fronteo announced the start of a joint research project together
with the Japanese Foundation for Cancer Research and the Cancer Precision Medicine
Center, with a view to developing an AI system for the personalised treatment of cancer.
The diagnosis support system, using state-of-the-art genomic analysis technology and
KIBIT, implements AI-based searches for papers related to treatment of patient-specific
symptoms and characteristics to help the physician make a judgment. In addition, an
"informed consent support system" provides patients and their families with
supplementary explanations to ensure sufficient understanding about the treatment
method and drugs involved. The company plans to take part in joint development with
the Japanese Foundation for Cancer Research through to 2021. As with Watson, we
expect to see ongoing efforts to provide support for physician diagnoses in medical
situations.
System to predict changes in patient's condition based on EMR analysis (NTT
Medical Center Tokyo)
This system learns the causes of changes in the body’s condition and raises the alert
promptly when required. It makes assessments based on medical records using nurses'
records and EMRs. The first target is patients falling. NTT Medical Center Tokyo has
introduced a system that can predict when a hospital patient is likely to fall. The system
also helps support the effective utilisation of body motion sensors, sensor mats, and safe
in-hospital footwear.
52
Job assistance system (Litalico)

Litalico, which provides employment assistance services for people with disabilities,
offers a range of support services chiefly for mentally handicapped people. These
include help with job-hunting activities and work commitment. The company has
introduced Fronteo's KIBIT AI engine to learn "tacit experience" from veteran staff in the
field of job hunting support activities and analyses and digitises support record data.
Where the condition of the recipient of support appears to have deteriorated in the
workplace, the system also provides for the early detection of this to help ensure early
treatment and continued employment.
The flow of how KIBIT works in this case is as follows: (1) information on signs of
deterioration in conditions is accumulated chiefly from experienced staff from past
employment assistance records, (2) KIBIT absorbs the tacit knowledge ("training data")
obtained from experienced staff, and a considerable volume of employment support
records built up day by day is classified in order of the severity of the symptoms, and (at
the work site from here on), (3) Litalico, prioritising the high risk layer, confirms the
support records in detail at the head office and quickly follows up, communicating with
onsite staff before the employee's condition deteriorates.
AI x healthcare market size: solutions are the main driver

Expecting growth in market for solutions using AI rather than market for AI
systems themselves
In the AI x healthcare market, we expect AI-based solutions to drive new value creation
rather than uptake of AI systems themselves.
We see prospects that AI drug discovery systems will contribute to improved efficiency in
the screening of compounds and development. Progress is being made in AI diagnosis
support by Watson and the University of Tokyo and by Fronteo and cancer research
bodies, and we expect such support increasingly to find its way into medical treatment
settings.
Solutions the key to accelerated market expansion

We believe that incorporating solutions that use AI systems within existing services will
stimulate the creation of AI-based healthcare services. For example, in sales support,
M3's MR-kun service (which aims to maximise sales by bringing together sales activities
of real MRs and the sales promotion activities of pharmaceutical companies through the
m3.com platform) could incorporate AI systems. In this (purely hypothetical) example,
that could open the way to the provision of information on prescription trends, side
effects, combination therapies, and academic society information tailored to the
demands of individual physicians. That, in turn, could lead to rising unit prices for
MR-kun services.
53
#3: Robots x healthcare

Robots x healthcare: 15-second snapshot—summary and
conclusions
★ Global medical robot market forecast to reach USD12.8bn in 2021.
★ Japan's long-term care and medical treatment robot markets in 2035: long-term care,
¥400bn+, medical treatment, ¥95bn.
★ Robots fall into two main categories: those that raise productivity (surgical support
robots such as EMARO and HAL for Labor Support) and network type (Cyberdyne).
★ Cyberdyne is far in the lead. It offers not only treatment robots but also lifestyle
support and robots and data analysis technologies to support Society 5.0 town
planning.
Global medical robot market forecast to reach USD12.8bn in

2021
The use of robots, which have thus far been developed principally for industrial
applications, has been spreading to the medical and healthcare fields. In the medical
field, robots have been commercialised for surgical support in such areas as
neurosurgery, orthopaedics, and laparoscopy as well as for rehabilitation. Support robots
are often used in surgical procedures when there is need for great precision such as
determining puncture and operation points. Robots help in such ways as allowing
operators to concentrate on technical procedures and ensuring the precise location of
operating points. China has reportedly developed robots that can perform surgical
operations.
According to market research company MarketsandMarkets, the global market for
medical robots amounted to USD4.9bn in 2016 and is forecast to grow to USD12.8bn in
2021. That would represent average annual growth of 21%. Among drivers of market
growth, we note the IPOs of medical robot companies, increasing investment by
hospitals and other medical institutions in robots, and the growth trend in raising funds
for medical robot research.
da Vinci the first surgical support robot

Many devices have been developed to provide support for physicians in operating
theatres, and robots have shown the potential to play a core role in increasing the
precision of surgical procedures. Intuitive Surgical's da Vinci surgical system has led the
way in this field. In the US, the da Vinci surgical system is being used not only for
treating prostate cancer but also in a spreading range of other areas, including those
related to the respiratory system, the digestive system, and ENT. Japan started covering
the use of medical robots with public health insurance in 2012.
In Japan, a state-sponsored project in the long-term care field was launched in FY13 to
promote the development and introduction of robotic devices for nursing care. This has
now been brought under the Japan Agency for Medical Research and Development
(AMED), which is looking to promote the practical use and commercialisation of long-
term-care robots.
In the use of robots in the healthcare area, Intuitive Surgical opened up the new field of
robotic surgery with its da Vinci system. Cyberdyne's HAL robotic devices, which have
been covered under the German workers’ compensation insurance scheme for the
treatment of patients that have suffered spinal cord injuries, is now also being covered by
Japan’s healthcare insurance for the treatment of patients with neurological disorders. In
December 2017, HAL received marketing approval in the US for the indication of spinal
cord injury.
54
Fig. 34: Main nursing care robots

Main fields Equipment name Company
Transfer assistance for nursing care Robot Suit HAL for Care Assist (lumbar-support type) CYBERDYNE
(wearable) Muscle Suit for Care Assist Kikuchi Seisakusho
Transport robot Hug T1 Fuji Machine Mfg
Transfer assistance for nursing care (non-
Resyone Plus Panasonic AGE-FREE
wearable)
Robohelper Sasuka Muscle
Electric powered walking frames RT. Works
Outdoors transfer
Walking assistance robots Kawamura Cycle
Toilet support Vacuum Waste Drainage Assist Portable Toilet System Aronkasei
3D electronic mat-type patient monitoring system Noritsu Precision
Silhouette monitoring sensor King Tsushin Kogyo
Long-term care facilities
Contactless, unbounded bed monitoring system Ideaquest
Monitoring
Systems for long-term care facilities with sensors to monitor patients getting
VR Techno center
out of bed
Source: Nomura, based on METI/AMED projects to promote the development and introduction of robotic devices for nursing care
Productivity enhancement type and network type

As already noted, a wide range of equipment has been developed in Japan in the field of
robots for medical and long-term care applications. We see healthcare-related robots as
falling under the following two major categories.
(1) Robots that help and ease the burden on physicians and care providers through
support for surgical operations and care work.
(2) Network-type treatments and surgical operations that make vital data and medical
procedure data available on networks and support data analysis and greater
efficiency at the care level. Combined with other modalities, network-type systems
can also be used for remote care and management of risks of physical conditions
changing due to alterations in vital sign data.
Examples of productivity-enhancing healthcare robots include Riverfield's EMARO and Fig. 35: EMARO
Cyberdyne's HAL Care Assist (lumbar-support type) systems.
Productivity-enhancing type: EMARO (Riverfield), the world's

first pneumatically controlled surgical assist robot
EMARO (Endoscope Manipulator Robot) is an endoscope manipulator robot developed
by Riverfield, a venture company launched by the Tokyo Institute of Technology and the
Tokyo Medical and Dental University. Sales began in August 2015 and are handled by
Hogy Medical. An endoscope-based surgical operation requires a second doctor to serve
as a scopist, one who is skilled at controlling the devise in accordance with the
instructions of the surgeon. Such surgeries present unique risks, such as communication
difficulties between the operating surgeon and the scopist and camera shake. EMARO Source: Riverfield press release
controls the endoscope by sensing movements of the surgeon's head, through a
gyroscope that is worn on the forehead. The surgeon directs the pneumatic manipulation
of the endoscope by controlled movements of his head.
Technical features are
• In-house-developed pneumatic driving and control technologies make it possible for
robots to move gently and smoothly with a high level of safety (minimally invasive).
• The pneumatic approach makes it possible to create a compact and lightweight design;
sufficient power can be obtained by injecting or extracting air through a cylinder that is
about 10mm in diameter.
55
Benefits of EMARO (increased physician productivity)

• Greater precision in operations: the operating surgeon can receive clear endoscopic
images directly without going through the scopist and free of camera shake.
• EMARO, taking the role of a scopist, can be useful in smaller hospitals that have a
shortage of doctors, allowing more patients to undergo laparoscopic surgery.
Riverfield is developing a compact da Vinci system for Japan
Riverfield is in the midst of developing a surgical assist robot that enables sensor-based
operations using in-house developed pneumatic control technologies. As with the
existing da Vinci system, the physician operates the master device at a distance from the
patient, with pneumatic control of the surgical tools inside the body on the slave robot
side. Key features include manipulation inside the body and the physician having access
to information displayed by the sensors in real time. Riverfield is aiming for medical
device approval around 2020.
Productivity-enhancing type: lumbar support HAL

(Cyberdyne) (care support, labour support, independence
support applications)
Lumbar-support HAL provides care support (to assist the operations of caregivers and
reduce the physical burden on them) and labour support (for construction sites,
warehouses, and other locations, to assist peoples' work and reduce the physical burden
on them), and independence support (to help care recipients stand, sit, and move around
on their own).
Using “cybernics” technology nurtured through lower-limb-type HAL (under which the
brain orders a certain movement and the robot moves to reinforce the ordered
movement and ensure its precision, providing feedback to the brain on the actual
movement), this equipment eases the strain on the back of moving heavy objects.
The products contribute to enhanced productivity among workers and caregivers
and create an environment that helps people to work even into old age
HAL for Labor Support (Lumbar) and HAL for Care Support do more than simply ease Fig. 36: HAL for Labor Support
the burden on operators. The use of lumbar-support HAL robot suits, for example,
enables proficient workers on construction sites and factory floors to maintain a certain
workload and level of productivity into relatively old age. For work sites faced with
problems of labour shortages, this means that we can expect existing workers to be able
to keep working safely for longer.
As an example of a network-type healthcare robot, we highlight Cyberdyne’s HAL for
Care Support and HAL for Medical Use.
Source: Nomura
Network-type: HAL for medical/healthcare applications
(Cyberdyne)
A leader in therapeutic robotic devices
HAL for Medical Use was approved in 2014 for workers' compensation insurance in
Germany. In Japan it began to be used under public insurance coverage in 2016 in the
treatment of patients with neurological disorders. Treatments using HAL for Medical Use
also began in 2017 in Poland (private insurance) and Saudi Arabia (public insurance). In
the US, HAL received marketing approval for the indication of spinal cord injury in
December 2017.
A number of robot exoskeletons have appeared around the world that appear
similar to HAL, but they are completely different
A variety of exoskeleton devices exist that provide support for patients’ body function
through being attached to the lower limbs. ReWalk and Indego (Parker Hannifin) have
already received US FDA manufacturing and marketing approval as medical equipment.
In Japan, too, Toyota Motor began selling its rehabilitation support robot Welwalk WW-
1000 in 2017.
56
Generally, exoskeleton robots are wearable for support or rehabilitation

These may superficially resemble HAL, but they are completely different systems. Many
exoskeletons are attached to the body to enable people to walk, with mobility made
easier through motor assistance. They can be regarded as attachable assistance
devices along the lines of walking sticks and walkers. Alternatively, they are used for the
purpose of rehabilitation as robots that use electric power to bend and stretch legs, so
preventing muscular weakening.
Fig. 37: Main exoskeleton robots

Company Sales Medical field applications
Company Products Product features
home country format Rehabilitation Therapeutic effects
FDA approval for use
After- with individuals and
ReWalk Robotics US Rewalk -
market use for rehabilitation
purposes
Apparently used as
Lower-limb training, Website records uses including
Ekso Bionics US Ekso GT - rehabilitation tool for
wearable rehabilitation in treatment of stroke
therapeutic purposes
Walk assistance support robot to help
device, rehabilitation- the treatment of such
use device conditions as stroke Walk support for
spinal injury patients,
Robot itself has no After- improvement in
Parker Hannifin US Indego -
therapeutic effect market patient QOL through
walking used as
wearable device
Support for
Company expects Being used in clinical research
rehabilitation from leg
Welwalk contribution to in 23 medical institutions
Toyota Motor 日本 paralysis resulting Rental
WW-1000 recovery in lower limb nationwide (as of end-March
from disorders such
functions 2017)
as stroke
Medical equipment Robot-based therapy taking

to achieve therapeutic place under German workers'
benefits in such areas compensation insurance
as promoting the scheme
Therapeutic robotic functional In Japan, approved for patients
HAL for Living
device improvement of the with intractable neurological
Support has been
brain-nerve and disorders in November 2015,
introduced into
HAL itself brings Cyberdyne Japan HAL muscular systems Rental treatment began in September
rehabilitation centers
therapeutic benefits 2016
and long-term care
comparable to those An application has been filed
Supports exercise facilities
from pharmaceuticals with the FDA in the US seeking
by motion according to
approval as a therapeutic
wearer's intention
robotic device marking a major
with biolectric
departure from existing walk-
potential, etc
assist devices
Source: Nomura, from company websites and data
Aim of HAL is to help patients recover motor function once equipment is detached
The aim of HAL for Medical Use is to achieve therapeutic benefits such that people's
physical functions recover so they can walk even without the equipment being attached.
In this, HAL differs radically from other exoskeleton models.
HAL works by sending electrical signals to the brain. In this it differs from the approach of
generating muscle movement through myoelectric muscle stimulation. Put simply, with
patients for which the brain is unable to relay signals to the musculoskeletal system
through nerves, HAL's sensors analyse the direction of the body ordered by the brain,
the strength of movement, and adjustments to the body's centre of gravity and directs
the power units at each joint. The system enables minor adjustments, such as "move
slowly," "move fast," or "step by 45 degrees" (because there are obstacles in the way).
In addition, when HAL drives and supports the body movement, it provides feedback on
the movement of muscles and nerves to the brain via sensors. In this way information
gradually comes to be smoothly communicated between the brain and the body,
ultimately leading to improved bodily operation without using HAL.
57
Networking: HAL's accumulated performance information

contributes to improvements in treatment and rehabilitation
technology
So, in what sense is HAL a network-type system? Data on patients and users relating to
treatment and rehabilitation is collected through HAL for Medical Use and HAL for Care
Support. Data on insurance treatment and clinical trials is expected to be used to
improve the function of HAL, to formulate treatment and rehabilitation programs at
hospitals and long-term care facilities, and to measure therapeutic effects.
Moves to use robots in urban planning
Cyberdyne aims to create a society in which robots and humans coexist with HAL-series
devices and other robots. Fig. 38 shows the case where the burden on both the
caregiver and the care recipient is reduced by cybernic systems developed by
Cyberdyne as part of its effort to realise a super-smart society, Society 5.0, and related
improvements in quality of life (QOL).
Information obtained from vital sensors that can measure blood pressure and
arteriosclerosis risk, treatment data for HAL medical treatment, and rehabilitation data for
welfare, as well as clothes, is accumulated as big data. Accumulated data could enable
quality improvements in surgery and treatment plans and more effective rehabilitation.
Improvements in surgery, treatment, rehabilitation, and care at long-term care facilities
hold out the promise of: 1) reduced risks of the care recipient’s condition deteriorating;
and 2) improved prognosis after treatment and the patient being able to return to society
in a productive capacity. In such ways, benefits can be expected not just from reducing
medical expenses.
Society 5.0 and the realisation of a zero intensive-nursing care society are concepts of a
super-smart society of the future, promoted by the Japanese government. It involves
diverse devices being linked, including Cyberdyne equipment, supported by accumulated
physical and physiological data. Related trials have started in Tsukuba City in Ibaraki
Prefecture.
Fig. 38: Society 5.0/zero intensive-nursing care society and Cyberdyne; recently it’s called 5.1
Serious social issues Cyberdyne's challenges Realization of goal of a zero intensive nursing care society
Big data on physical, Super computers

physiological, and life-log
information
Dramatic extension of residual Medical-use HAL
・Use of cybernics technologies functions
・Social implementation
・ Accumulation of big data
Caregivers ・Tie-ups with other parties
Life support
・Improving independence of Cybernics device
nursing-care recipient
・Dramatic reduction in burden on Dual use of assistive and
industrial/disaster
caregivers
response technologies
Nursing care
recipients, Support Welfare-use HAL
patients ・Innovative changes to social problem- independence,
solving industrial infrastructure health
improvements Cybernic interface Well-being support
Lumbar- support
Mobility Handling robots Vital sensors
HAL
Source: Nomura
58
#4: Healthcare x ICT platforms – medical

care, long-term care, preventive care,
presymptomatic improvement
Healthcare platforms: 15-second snapshot—summary and
conclusions
★ Healthcare platforms serve as collection and delivery points for information on the
latest pharmaceuticals, medical equipment, advanced medical treatments,
preventive care, and presymptomatic improvement.
★ M3’s m3.com is the starting point for all healthcare x ICT services, and its value is
expanding for creating healthcare, in addition to changing healthcare.
★ Kanamic Network is developing a model that involves local residents in cooperation

with health management models of local government.
★ Operating theatres require information connectivity both inside and outside the
theatre and Ship Healthcare Holdings is participating in a smart operating theatre
project and aims to bring new technology to the world.
ICT platforms as starting point for robot and AI application

and commercialisation
We think robot and AI technologies have the potential to promote a paradigm shift in the
overall healthcare sector, including medical care and treatment. These technologies also
have potential to create further value by using a variety of networked information across
a wide range of areas and occupations. Regional networking and use of big data is
shifting the mainstream from previous EMRs completed within hospitals and specific
organisations to PHRs allowing individuals to manage all of their health and hospital
information from anywhere. We believe a key factor in promoting networking and big
data is the development of healthcare platforms to transmit this information. The Society
5.0 initiative in which Cyberdyne is involved is one form of healthcare platform.
We will introduce three examples in this chapter: (1) operation platform for operating
theatres; (2) platform to put existing medical procedures online and disseminate
advanced medical treatments and technologies; and (3) platform with participation by
local governments, healthcare providers, and local residents.
SCOT makes surgical procedures feel like taking a test with a

dictionary
AMED and Tokyo Women's Medical University are working to develop smart operating
theatres that improve the precision and safety of procedures by networking an operating
theatre’s medical equipment and enabling an integrated understanding of procedural
progress and patient status. The Tokyo Women's Medical University has a final
prototype model and Hiroshima University Hospital has a basic specifications model that
are now being used to treat patients.
59
Many surgical support devices are standalone systems

Surgical navigation support robots and treatments using diagnostic imaging during
surgery (eg, intraoperative MRI rooms) have been developed and are now being used.
However, many of the devices used in surgery are standalone systems, and information
on treatment using surgical support and other devices and a patient's biological
information are recorded and compiled in a format specific to each device. This makes it
difficult to compare information from multiple devices. Doctors and nurses provide
treatment while assessing information obtained from various medical devices in a limited
amount of time. Consequently, judgment capabilities can differ depending on skill levels,
the transfer of information from staff to surgeon can be affected, and staff may not
always be able to reference the same information.
Fig. 39: SCOT enables modality connection and real-time monitoring inside and outside operating theatre
Other Surgical strategy desk (doctor’s office use)  Control tower role
standards Third Panel Integrated
compliant party operation display
apps app app
apps
Database
OPeLiNK data server
Information
sharing
ORiN (middleware) feedback
Other
Patient Electronic
standards DICOM
connection provider
monitor
provider
scalpel
provider ・・・・・
provider
Other standards Various medical Surgical strategy desk (operating theater use)  Real time feedback
Patient
compliant imaging and
medical devices testing devices
monitor
Electronic
scalpel ・・・・・
Source: Nomura
SCOT enables surgery while sharing data in real time by networking devices
inside and outside the operating theatre
The Smart Cyber Operating Theater (SCOT) connects various medical devices both
inside and outside the operating theatre to enable the immediate consolidation of
information about procedural progress, patient condition, and other factors, and the real-
time sharing of the same information between doctors and staff. Specifically, the various
medical devices used in the operating theatre (eg, endoscopes/microscopes, MRI
systems, ultrasound systems, electronic scalpels, anaesthesia systems, shadowless
lamps, and patient monitors) are connected via the OPeLiNK operating theatre
communications interface and data is recorded and shown in a time-synchronised format.
Surgical strategy desk: integrated intraoperative information is displayed inside
and outside the operating theatre
An operating theatre that is networked using OPeLiNK allows doctors and staff both
inside and outside the operating theatre to view images from modality during the surgery,
instrument positioning from the surgical navigation system, operative field images,
biological information, and so forth (surgical strategy desk/OPeLiNK Eye). At present, 20
types of medical devices are connected. According to Professor Yoshihiro Muragaki from
the Tokyo Women’s Medical University, the integrated display at the surgical strategy
desk of information acquired from different devices allows surgery to be performed with
the feeling of taking a foreign language test with a dictionary on hand.
Future of medical care shown by SCOT
Hiroshima University Hospital is operating a package model of SCOT equipped with the
medical devices currently used in operating theatres. It has been used in surgeries to
treat brain malignancies and femoral cancer. Using an intraoperative MRI makes it
easier to precisely remove cancer. Shinshu University plans to deploy a package that
connects medical devices to a device information network in 2018, and the Tokyo
Women's Medical University plans to deploy a robotics-equipped version in 2019 (Hyper
SCOT).
60
Anticipated results
• In terms of greater surgical precision, examples include the real-time display of tumour
weight and the risk of harming nervous system motor functions. It would be possible to
measure a procedure's risk of paralysis and other outcomes. Using an intraoperative
MRI would allow confirmation of lesions and remaining diseased cells. The ability to
perform pathological measurement in the operating theatre would help assess risk for
spots that are hard to determine.
• We think higher demand for networked operating theatres could support growth at Air
Water and Ship Healthcare Holdings, which sell customised operating theatres.
SCOT project participants
The following universities and companies are involved in the AMED project entitled
“Research and development of advanced medical devices and systems to achieve the
future of medicine/Development of a smart treatment chamber for the improvement of
both medical safety and efficiency.”
Universities: Tokyo Women's Medical University, Hiroshima University, Shinshu
University, and Tohoku University.
Companies: Hitachi (permanent magnet open MRI system), Denso (robot arms), Mizuho
(operating table equipment), Pioneer (navigation systems), Nihon Kohden (patient
monitors), Central Uni (Ship Healthcare Holdings handles sales and equipment
connection), Toshiba Medical Systems, and Air Water (sales).
M3.com changes and creates healthcare: expanding to

various services from DtoBtoC platform
M3 has established several business models for efficiently performing existing medical
care procedures via the internet, starting with the m3.com medical platform with a
membership base comprising doctors and medical professionals.
Fig. 40: Initiatives to change and create healthcare starting with m3.com
Creating healthcare
Pharm aceutical
com panies
Medical device m akers
○Clinical trial related
○Seeds rocket
○Career
○Cancer genome solution
Internet + real operations ○M3 AI Lab
○Genome diagnostics,
etc
Advanced
m edicine
NEW!
Medical institutions ○MR-kun Family

and doctors ○Web surveys
○AskDocotors
m 3.com platform (internet)
Patients and consumers

Changing healthcare
Source: Nomura
M3 has created "e + real" models since 2010, including with clinical trials and actual MRs
using MR-kun. In 2017, it launched efforts to make doctors aware through m3.com of
advanced medical equipment developed by venture companies in which it has invested,
and to provide support to cancer patients for obtaining a second opinion. All of these
initiatives started with the m3.com platform, and the company is creating the impetus to
make conventional marketing methods and procedures more efficient (Fig. 40).
61
Creating regional medical information platform in cooperation

with local governments: initiatives of Kanamic Network
Regional medical and long-term care information platform
Kanamic Network provides cloud services specialising in the areas of medical care and
long-term care. It is cooperating with local governments that aim to build comprehensive
regional care networks in deploying the TRITRUS system as a platform for regional
sharing of medical care and long-term care information. Starting with TRITRUS, the
company also provides long-term care operations support systems, child-rearing support
systems, and content services. It has deployed Kanamic Cloud at 477 local government
authorities as of March 2017.
Kanamic Cloud: Ensures business viability while cooperating with local
governments
Kanamic Cloud comprises a system for local governments and regional medical
institutions to share regional medical and long-term care information (Level 2), and a
long-term care operations management system (Level 1) (Fig. 41). Businesses that
cooperate with local governments are often affected by local government budgets, which
tends to restrain sales and profitability. For Kanamic Cloud, however, we expect diversity
in earnings sources, including growth in regular income when cloud service subscribers
increase and an advertising model as accounts expand because the long-term care
operations management system is not affected by budget constraints at local
governments.
Fig. 41: Kanamic Cloud service
Note: Several other functions as well
Paid customers
Local governments
Medical associations
sharing system
Core hospitals
Information
Messaging Home care providers

Level 2 Community Bulletin board Service calendar Drug planner
Free users
Patients
Long-term care patients
Family
Timeline Profile Assessment survey Mail notification Personal calendar
operations system
Long-term care
・Regional support
・Care plan creation
・Visitation care planning business
・Care planning ・Monitoring
・Care documentation ・Consultation services
Level 1 ・Documentation ・Representative consultation Paid customers
・Monitoring ・Care management
・Insurance claims ・Benefits management and Comprehensive
・Care insurance claims support
... claims regional support center
..... ・Care insurance claims
... Care manager
..... Care providers
Doctor
(hospital, in-home care)
Visitation nurse Care manager Helper/caregiver Comprehensive regional

support center
Level 2 acts similar to a social networking site for medical care

Level 2 is deployed on a region-wide basis, using middle school districts as a yardstick,
and targets local governments, medical associations, core hospitals, home care
providers, and other entities. Patient profiles provide integrated management of care
plans, daily vital signs data, medical history, and other information that can be viewed
only by persons associated with the patient, including their doctors, helpers, and family.
This level also functions similar to social networking sites by distributing and sharing
information among relevant parties.
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Level 1 is a long-term care operations management system

Level 1 is a long-term care operations management system for regional support centres,
care managers, and long-term care service providers. The long-term care operations
management system connects with the Level 2 information sharing platform. Long-term
care facilities use smartphones and tablets to perform operations, which allows them to
input and reference information in real time and facilitates coordination, including
inquires to various medical professionals.
Implementation for Kashiwa Model serves as model case for regional information
sharing
The starting point for Kanamic Cloud was the adoption and use of Kanamic Network's
systems in trial operations of a comprehensive regional care network known as the
Kashiwa Model by Kashiwa City in Chiba Prefecture, the Institute of Gerontology at the
University of Tokyo, and other parties. Using Kanamic Cloud as an online system allows
doctors, nurses, dentists, helpers, and other medical professionals to share information
in real time and creates opportunities to conduct online training sessions that assemble
peers who normally have few chances to meet in person. Gaining a mutual
understanding among various occupations helps facilitate online information sharing and
social networking-style communication.
The expertise gained from building the system for the Kashiwa Model has since been
used for a home care network in Yokohama City and for cooperation by five medical
associations in Kitakyushu City.
63
Singapore – increasingly integrating Healthcare/Pharmaceutical
technology into healthcare Raghavendra Divekar, CFA - NSC

raghavendra.divekar@nomura.com
In 2014, the Singapore government launched the ‘Smart Nation’ initiative to leverage on +81 3 6703 1229
investments in digital infrastructure, its high population density and a technologically
literate citizenry to develop people-centric solutions to address urban challenges.
Technologies such as data analytics, artificial intelligence and internet of things are being
deployed to transform the country into one digital network with healthcare being one of
the major focus areas of this initiative. Even earlier, the Singapore government had
placed a strong emphasis on the healthcare sector having invested significant resources
in developing its capabilities to meet the evolving demands from patients and care-givers.
To further this aim and integrate IT into health care services and operations across
Singapore, the MOH had established the Integrated Health Information Systems (IHiS) in
2008. IHiS is tasked with improving the health and health administration of Singapore by
integrating intelligent, highly resilient and cost effective technologies.
Going forward, we see three key ways in which technology can be used to deliver holistic
healthcare to the rapidly ageing population in Singapore: 1) increasing use of robots; 2)
telehealth; and 3) the National Electronic Health Record (NEHR). Amongst the
healthcare organisations in the country, the public sector hospitals have taken the lead in
embracing the increasing role of technology by rolling out new and innovative initiatives
to improve the delivery of healthcare services. Within the private healthcare
organisations, we see IHH Healthcare as best placed in using technological
advancements including telemedicine and robotic surgery to improve patient care at its
hospitals.
Robots – critical to alleviating Singapore’s manpower crunch

Singapore’s overall labour supply is expected to decline by 1.7pp annually over 2017 –
2026 and by 2.5pp annually in 2027 – 2036, according to a 2017 report by Oxford
Economics. This shortfall is expected to be even more pronounced in healthcare
services as the country’s population ages and the ratio of patients to care-givers rises.
To alleviate this manpower crunch, hospitals are increasingly turning to robots and other
assistive technologies.
Fig. 42: Panasonic autonomous delivery robot - HOSPI
64
The current focus is on automating logistics for the hospital

The primary use for robots in Singapore currently remains in automating logistics with
hospitals increasingly using them for moving documents, drugs and hospital bed linen.
Changi General Hospital was the first hospital outside Japan to use the Panasonic
autonomous delivery robots – HOSPI, starting in 2015. These robots are used to deliver
fragile and bulky medicine, medical supplies and patient case notes through the hospital,
helping to ease manpower constraints. They are also able to navigate obstacles in their
route on their own and complete deliveries with minimal supervision. They can be
continually monitored from a central location and have also been linked to the hospitals
fire alarm system in case of emergencies.
Robots also being increasingly used for pharmacy services
Hospitals in Singapore are also using robotics to reduce pharmacy waiting times and the
burden on hospital pharmacists by automating part of the process for medicine
dispensing. Tan Tock Seng Hospital uses the Outpatient Pharmacy Automation System
(OPAS) designed by the IHiS. The OPAS uses a number of robots working together to fill
patient prescriptions in about seven minutes. At the heart of the OPAS is the ~€70,000
Rowa Vmax manufactured by CareFusion, which retrieves medicine from a storage
cabinet, updates the stock and sends alerts when supplies are low. Drugs are selected
by scanning their barcodes and this is again validated at the pharmacy collection counter.
While humans are still needed for some drugs with special handling processes, 80% of
the selecting medication is now done by robots at the hospital pharmacy. This allows the
pharmacist to spend more time interacting with patients and has helped to reduce
waiting time by up to 50% at the outpatient pharmacies. According to the hospital, it has
achieved manpower savings of 19 full time employees, who have been redeployed to
higher value work.
Telemedicine – enhancing access and improving productivity

As discussed earlier on page 12, telemedicine involves the use of telecommunications
infrastructure to provide clinical health care, such as health assessments or
consultations, remotely. Since the turn of the century, telemedicine has been used in
Singapore, largely in the form of teleconsultations by doctors for elderly patients, for
medical rehabilitation services and for remote examination of bed-ridden patients
including those suffering from a stroke. As the scope of telemedicine grew, the MOH
issued the National Telemedicine Guidelines in 2015 to create a broad framework and
provide guidance on best practices to ensure patient safety. These guidelines include: 1)
standard of care provided by telemedicine services must be comparable to traditional
medical care; 2) patients must be given freedom to make an informed decision about
receiving telemedicine services; and 3) healthcare organisations must ensure that
patient information and records are well protected.
Under its goal of becoming a Smart Nation, Singapore is increasingly exploring
telehealth and telemedicine services. This is based on the principle that bringing
healthcare services to the patient’s home will enhance patient care and increase the
productivity of the healthcare system. The increased use of telemedicine is expected to
offer integrated and seamless care to patients, while optimising resources to overcome
the increasing shortage of healthcare professionals and care-givers. The use of
telemedicine is especially expected to benefit elderly patients by reducing the need for
them to travel to visit doctors, cut down on waiting times and allow them to age-in-place.
Public hospitals have taken the lead in implementing telemedicine
In Singapore, public hospitals have taken the lead in implementing telemedicine services
for their patients. In 2017, two major initiatives were launched by the public hospitals:
• Smart Health Video Consultation for Healthcare was launched in April and has been
implemented for select services at Singapore General Hospital, Tan Tock Seng
Hospital and KK Women’s and Children’s Hospital and other facilities. This platform will
be largely used for follow-up services including for communicable disease monitoring,
cancer patient care and post-stroke care.
• Smart Health TeleRehab is a national pilot program from the IHiS and T-Rehab, a start-
up from NUS and has been implemented from May. This program enables patients to
undergo their rehabilitation exercises from home through the use of wearable sensors
65
and remote monitoring by therapists. This program has also helped to improve
productivity of therapists and service providers. This telerehab program is largely
targeted towards patients recovering from conditions including stroke, fractures and
musculoskeletal conditions.
Private operators such as IHH Healthcare also exploring telemedicine services
Despite falling behind the public sector, we see the private healthcare operators trying to
increasingly make up lost ground in the field of telemedicine. Amongst them, we see IHH
Healthcare being at the forefront with the company introducing tele-consultation services
on its own platform to patients of its primary care segment in Singapore. We also
understand that the company plans to roll out more telemedicine initiatives for its hospital
operations in the near future.
Fig. 43: National Electronic Health record
Source: MOH, Nomura research
NEHR – one patient, one health record

Since 2011, the Ministry of Health and IHiS have progressively deployed the National
Electronic Health Record (NEHR) to both public and private healthcare institutions
across Singapore to support “one patient, one health record”. The NEHR collects
summary patient health records across the different healthcare providers. This includes
every aspect of a patient’s medical history including visits to doctors, medications,
vaccinations and allergies. While the NEHR has been largely embraced by the public
healthcare providers there had been slow uptake from private healthcare providers with
only 3% of private healthcare providers contributing to it, according to IHiS. We believe
this is due to two key reasons: 1) large healthcare operators like IHH and Raffles had
their own systems in place with little incentive for sharing patient data with public
hospitals and other operators; and 2) limited IT capability and expertise at smaller clinics
and GPs preventing them from linking to the centralised system with about 20% of
private healthcare providers still maintaining only hand-written records.
66
As the population in the country ages with people suffering from multiple chronic
conditions needing to visit more than one doctor for treatment, sharing of information has
become increasingly important. Given this, the MOH now plans to make it compulsory for
all healthcare providers including private operators to upload patient data to the
centralised NEHR. We expect these proposed changes to be passed by parliament in
2018 with healthcare operators having a grace period of two to three years to streamline
and link their health records with the centralised NEHR. This would make Singapore one
of the firs countries to establish such a comprehensive system. We understand that the
government plans to set aside SGD20mn towards helping medical practices offset the
costs of updating their IT systems in order to link to the NEHR.
The NEHR will enable a doctor to have all the relevant medical information needed to
help them diagnose and treat their patients. The availability of historical information is
also useful especially in the case of elderly patients who may not know or recall their
diagnosis and the medications they have been prescribed. We understand that the MOH
plans to ensure that the information in the NEHR is accessible only to the doctors or
physicians treating the patients and will not be accessible by the employers and insurers.
Moreover, patients can also proactively decide to opt out of the system if so desired.
We expect the shift to NEHR to benefit larger private operators like IHH and Raffles
While the public healthcare providers have shifted to the NEHR, nearly all the large
private operators including IHH Healthcare and Raffles Medical have maintained their
own electronic health record systems. With the government planning to make the NEHR
system compulsory, we see the private operators facing an upfront cost to synchronise
their health records with the central. However, we do not expect this cost to be very
significant for the larger operators and we see them benefiting in the long run as the
ready availability of comprehensive health records will make it easier for patients to
transition from public to private hospitals and from small GPs to full scale one-stop
medical centres. Already, IHH has said that it will add patient data from its hospitals and
medical clinics to the NEHR from November 2018.
IHH Healthcare – proactive technology investments to pay off

Amongst the private healthcare operators in Singapore, we see IHH Healthcare as best
placed to benefit from the increasing use of technology in the healthcare ecosystem. The
company’s hospitals have been at the forefront in incorporating newer technologies and
medical innovations in order to improve patient care. IHH’s Mount Elizabeth Hospital was
the first private hospital in Singapore to use a robotic surgical system – the da Vinci robot
in 2004, shortly after the first robot was used in Singapore by The Singapore General
Hospital in 2003. Along with the da Vinci robots, IHH hospitals also currently use
Makoplasty robotic systems for surgeries including partial knee replacements. IHH has
also been a pioneer in the use of telemedicine, which is currently being used at its
primary care facilities in Singapore and we understand that the company plans to roll out
these initiatives at its hospitals in the near future.
In 2012, IHH opened its fourth hospital in Singapore, Mount Elizabeth Novena. To
differentiate this new hospital from its peers, we believe IHH has invested in three major
technological innovations: 1) Remote ICUs – IHH has piloted the use of cognitive
technology to optimise the ICU department at the Mount Elizabeth Novena hospital; and
2) Hybrid operating rooms – to allow doctors to do both minimally invasive surgeries and
conventional operations; 3) Proton Beam therapy – the Mount Elizabeth Novena hospital
will be the first private hospital to offer proton beam therapy for more targeted cancer
treatments from 2021. We believe these proactive investments have helped position
Mount Elizabeth Novena as a technology leader resulting in a premium pricing for its
patients and has allowed it to do more complex surgeries. This is reflected in the higher
revenue intensity generated by the hospital as compared to its peers including Raffles
Medical.
67
Malaysia – rising adoption of technology Healthcare/Pharmaceutical
The Malaysian healthcare system is organised into two tiers with public healthcare Raghavendra Divekar, CFA - NSC
system for all citizens and a private healthcare system for the affluent, citizens with raghavendra.divekar@nomura.com
+81 3 6703 1229
private insurance and foreigners including medical tourists. Under the government’s
Vision 2020, the goals of the healthcare system are to ensure universal access, improve
equity, efficiency and the quality of life of the population. As the disease profile in
Malaysia shifts from the treatment of communicable diseases to more chronic ailments,
the government has been faced with rapidly upgrading its healthcare infrastructure to
meet the needs of its ageing population. To tackle this changing profile, government
agencies and healthcare providers in Malaysia, both public and private, are increasingly
using technology and IT services to improve the healthcare delivery system and provide
quality care to patients. Some of the measures being adopted in Malaysia include the
use of Health Information Systems (HIS), telemedicine and robotic surgery.
Fig. 44: Malaysia’s Health Vision
Source: Ministry of Health’s Telemedicine Blueprint, Nomura research
HIS – only 15% of public hospitals have implemented till date

Hospital Information Systems is defined as an integrated electronic system that collects,
stores, retrieves and displays overall patient data and information such as her medical
history, results of laboratory test, diagnoses, billings and other related hospital
procedures. This data should be easily accessible across the various departments of the
healthcare organisation and play a significant role in helping it to control costs, improve
their processes, control cost and respond to the ever changing demands for quality care
of patients.
The implementation of the HIS in the public hospitals in Malaysia is divided into three
categories: 1) Total Hospital Information System (THIS) – these hospitals are known to
be paperless as they incorporate all the components needed for an integrated HIS; 2)
Intermediate Hospital Information System (IHIS); and 3) Basic Hospital Information
System (BHIS). IHIS and BHIS are hybrid systems as they maintain both electronic and
manual systems. Despite the initiatives taken by the Malaysian government including
enhancing information technology (IT) applications in the Malaysian public hospitals,
currently only 15.2% of Malaysian public hospitals have implemented either of these HIS
types (Ismail, Abdullah & Shamsuddin, 2015). Going forward, while we expect the
government to continue to invest in HIS systems for its hospitals, we do not expect it to
integrate its HIS and health record systems with the private sector as is being done in
Singapore.
68
Telemedicine – development led by private entrepreneurs

In 1997, the Malaysian government introduced the Telemedicine blueprint, an initiative to
employ the use of telehealth in the country’s healthcare system. According to the
blueprint, the objectives of telehealth are to strengthen the delivery of healthcare through
the use of telecommunications, information and multimedia technologies. Telehealth was
to be used as a tool to reshape the healthcare delivery system by becoming more virtual,
more integrated and more distributed. This was expected to improve efficiency and result
in a better healthcare delivery system. While the government continued to invest in this
initiative, widespread use of telemedicine did not catch on till recently due to the high
cost of medical technology and the limited reach of telecommunications infrastructure
through the country.
As the telecommunications infrastructure across the country continues to improve and
the use of mobile technologies becomes more ubiquitous, we expect an increase in the
use of telemedicine going forward. As government investment has continued, the
telecommunications infrastructure of more and more public hospitals has been
customised to support telemedicine applications. The Ministry of Health has also set up a
Telemedicine Development Group, which aims to form an ecosystem with multiple
stakeholders collaborating to support research, development and innovation of
telemedicine initiatives in Malaysia. Despite these initiatives by the government, the
increasing adoption of telemedicine is being led by entrepreneurs in the private sector
with a number of websites and platforms having come up to provide telemedicine
services including DoctorOnCall, RingMD, U2Doc and Teleme. These services can help
to reduce the physical distance between doctors and patients and help to provide quality
medical services even in remote parts of the country.
Fig. 45: DoctorOnCall – easy-to-use website interface
Source: DoctorOnCall.com.my, Nomura research
DoctorOnCall.com.my – Malaysia’s first telemedicine platform

DoctorOnCall is Malaysia’s first online Medical Video-consultation platform and provides
patients with non-emergency medical care from the privacy and convenience of their
home or any preferred location. The easy-to-use website interface connects patients with
an extensive network of experienced medical practitioners, ready availability and minimal
waiting time of 5-7 minutes and can be directly connected through the patient’s
smartphone or computer. Patients can interact directly with the doctors for a consultation
fee of only RM20 (~USD5) which can be paid directly though the website’s secure
payment integration system. The website has over 100,000 visitors on a monthly basis.
69
The patient first needs to register or log in to the system with just their basic information.
The patient can then choose the speciality of the doctor they would like to talk to and
input their symptoms or questions into the system. This helps to direct the patient
towards the appropriate doctor or specialist and the patient can then choose whether to
start an audio or video interaction. Once directly connected with the patient, the doctor
can provide a diagnosis, recommend treatment and even issue an electronic prescription
for the patient which can be downloaded from the website. Some of the major illnesses
or treatments include skin conditions, cold/fever, urinary tract infections or minor injuries.
DoctorOnCall has also expanded its healthcare footprint by becoming Malaysia’s first
online prescription based pharmacy and has combined its extensive network of doctors
and comprehensive medicine portfolio. The online pharmacy can fill the electronic
prescriptions if needed and also offers deliveries for various medications with an average
delivery time of 4-6 hours for areas within Kuala Lumpur and Klang Valley and 1-2 days
for rural areas.
Robotic surgery – being increasingly used to attract patients

Malaysian public hospitals were amongst the first hospitals in Asia to adopt robotic
surgery with surgeons at the Urology Institute of the Kuala Lumpur Hospital using a da
Vinci System in 2004 to conduct a prostate gland operation. These surgical robots are
controlled by a surgeon through a console with the surgeries typically performed through
keyhole incisions. The advantages of robotic surgeries include faster recovery times,
fewer complications and less bleeding for the patients. The major surgeries being
conducted by robots in Malaysia include urology surgeries including prostate and kidney
surgeries, gynaecological surgeries and colorectal surgery.
While robotic surgery is generally more expensive than laparoscopic surgeries,
increasing competition amongst private hospitals, doctors and healthcare operators has
resulted in an increase of surgical robots across the country and we expect this to
continue as its use becomes more widespread. As hospital operators look for more
revenue intensive patients and to increase their share of medical tourists we expect
surgical robots to be increasingly used for marketing the hospitals to patients. Currently,
most of the major private healthcare operators including IHH, Sunway Medical Centre
and Prince Court Medical Centre provide robotic surgeries to their patients. Moreover,
even private doctors and more established clinics have invested in robotic surgery to
attract patients and increase their revenue intensity.
70
Thailand – technological improvements Thailand Healthcare & Pharmaceuticals
to attract medical travellers Thanatcha Jurukul - CNS, Thailand

thanatcha.jurukul.1@nomura.com
As a medical hub in the region, Thailand has also continued to see improvement in +662 287 6799
medical technology invested into by major Thai hospital operators that offer tertiary care.
Ongoing technological improvement should make Thailand continue to be an attractive
medical tourist destination. It should also enhance effectiveness of treatment, which can
benefit the hospital operators in terms of higher revenue intensity, which is likely to
increase operation efficiency and operating margins. Among major Thai hospital chains,
we note that BH and BDMS have had invested the most in new technology.
We think technological improvement moves towards:
1) Less invasiveness for high-intensity treatment;
2) More technology alternatives for a single disease; and
3) More robotic involvement.
Less invasiveness
Thai hospitals have increasingly invested into minimising invasiveness of surgical
procedures, which has such advantages as: 1) reducing patient’s pain; 2) shortening
hospitalisation and recovery time; and 3) lower risk of unpleasant effects. Less invasive
procedures worth discussing include:
Minimally invasive surgery (MIS):
• Minimally invasive surgery is the surgery procedure where several small incisions
(mostly a few centimetres) to the skin are made and an endoscope is passed through
one of the incisions. Surgeons will see a clear and magnified view of the surgical areas
from the images generated from the endoscope, and perform the operations with
special instruments passed into the body through the other incisions.
• MIS can be used to treat irregularities in several body parts, such as urinary system
diseases, digestive system (stomach, intestines) diseases, appendicitis, gall stone,
tumour, Spondylosis (degenerative conditions of spine), etc.
• Compared to the open, conventional surgery, MIS offers less pain, less scarring, and
quicker recovery. Hospitalisation period can also be reduced from 7-14 days to 1-3
days. Adoption of MIS as an alternative for patients benefits hospitals in as revenue
intensity and operation efficiency should increase, due to the more advanced
technology used and shorter patient stay.
• MIS is largely available in major hospital chains, including Bangkok Hospital (BDMS),
Samitivej Hospital (BDMS), Phyathai Hospital (BDMS), Paolo Hospital (BDMS),
Bumrungrad Hospital, Kasemrad Hospital (BCH), Chularat Hospital (CHG).
CardioInsight™ Noninvasive 3D Mapping System (CardioInsight™ Vest):
• CardioInsight system is a non-invasive mapping system used for detecting problematic
heart cells that cause heart rhythm disorder. A high-tech vest is combined with CT scan
process to produce detailed 3-D cardiac maps.
• Conventional cardiac mapping is actually an effective tool to identify the cause of the
irregular heartbeat, but it requires catheterisation, in which a long thin tube will be
inserted in and pass through patient’s large blood vessel to the heart. Although it is
considered a minimally-invasive procedure, it can cause bleeding, infection, and pain at
the catheter insertion site, as well as patient’s anxiety.
• Unlike MIS, the CardioInsight is a new, and not yet a commonplace service.
Bumrungrad Hospital is one of the three hospitals in the world (as of January 2018),
and the first in Asia, that offer CardioInsight.
71
Fig. 46: CardioInsight vest
Source: Bangkok Post
More remedy alternatives

More technology alternatives offered for a single disease differentiates one hospital to
another and can enhance revenue intensity gained from patient treatment. Cancer could
be a good example of diseases. Treatment can be more effective and patient-satisfying
by choosing treatment(s) in addition to/other than chemotherapy and radiation that are
the most common cancer non-surgical remedies. Major tertiary private hospitals such as
Bumrungrad Hospital, Bangkok Hospital (specifically Wattanosoth Hospital for cancer
treatment) and World Medical Hospital (BCH) have offered such procedures as
Brachytherapy, Volumetric Arc Therapy (VMAT), High-intensity focused ultrasound
(HIFU) and EDGE™ radiosurgery.
• Brachytherapy – BH, BDMS; Brachytherapy is a form of radiotherapy, which places
radioactive sources inside the patient, inside or next to the area to be treated, to
damage cancer cells' DNA. It allows the doctor to use a higher total dose of radiation to
treat a smaller area in less time than conventional external beam radiation therapy.
• Volumetric Arc Therapy (VMAT) – BH, BDMS: VMAT delivers radiation by rotating the
gantry of a linac through one or more arcs with the radiation continuously on, which
makes it target the tumour better.
• High-intensity focused ultrasound (HIFU) – BCH: HIFU is a treatment that aims to kill
cancer cells with high frequency sound waves. HIFU is only useful to treat a single
tumour or part of a large tumour such as prostate cancer, and not suitable for the
already-widespread stage.
• EDGE™ radiosurgery – BDMS: EDGE Radiosurgery uses non-invasive tumour-
destroying with high radiation dose to treat cancer anywhere in the body where
radiation is indicated. EDGE system is being used with patients who were not good
candidates for surgery. This powerful advanced technology is very precise, accurate,
convenient and fast, due to the ability to deliver higher doses of radiation at a greater
speed. BDMS invested in EDGE in 2017.
72
More robotic involvement

Although there is no substitute for the experience and expertise of a well-trained surgeon,
the use of robots can be helpful in the areas where precision and repetition is needed to
ensure the best result of the operations. There has been use of robots at top-tier
hospitals in Thailand. We note that BH is tends to be the hospital with the most robotic
procedures among private hospitals. The following are BH’s robotic uses in healthcare
procedures.
Fig. 47: EDGE™ radiosurgery
Source: Varian Medical Systems
MAKOplasty
MAKOplasty is a surgical procedure for partial knee or total hip replacement using a RIO
Robotic Arm Interactive Orthopedic System developed by MAKO Surgical Corp. Joint-
related surgeries require extreme delicacy and precision. Studies show that use of
MAKOplasty tends to decrease in the friction between their implants and bones, leading
to less pain and quicker recovery.
Swisslog
Swisslog is an automated drug-management system. Bumrungrad Hospital implemented
Swisslog since 2008 and was the first hospital Asia to implement such a system.
Swisslog ensures higher accuracy and lead to hospital operation efficiency by removing
the human factor and allowing for the automation of preparation, packaging, and
dispensation of prescription medication that are tied in to the same barcode assigned to
each doctor upon registration.
The da Vinci Robot
The da Vinci Robot is used in the treatment of prostate cancer, as well as surgeries
within the kidney, uterus, pancreas, or intestines, for which fine precision is needed, due
to cavity areas. The da Vinci Robot is controlled by the surgeon through an imaging and
control system, while the robot carries out the necessary movements for the procedure.
Advantage is less damage to healthy tissue, a smaller incision and scarring, and a much
faster healing time. In addition to Bumrungrad Hospital, some of the hospitals under
BDMS’ Bangkok Hospital brand also provide treatments with the help of the da Vinci
Robot.
Robot-assisted spine surgery
Robot-assisted spine surgery is a surgical procedure that uses a robot in instrumentation
part of a spinal operation. The robot uses sophisticated software synchronised with
images from intraoperative 3D scanner to maximise accuracy of implant fixation.
73
India – use of technology will be crucial India Pharmaceuticals
to efficient delivery of healthcare Saion Mukherjee - NFASL

saion.mukherjee@nomura.com
The current healthcare infrastructure in India is highly inadequate. For instance, the +91 22 4037 4184
number of hospital beds per capita and number of doctors per capita is much lower
compared to other emerging economies. On the other hand, the demand for healthcare
services is on the rise. This is driven by a large and aging population, rising incidence of
chronic diseases, increasing disposable income and growing awareness. The
affordability of healthcare services is also supported by growing insurance coverage. The
Government of India plans to introduce a health insurance scheme, “Ayushman Bharat”,
for 107mn families covering almost half of India’s population. These factors could lead to
acceleration in demand for healthcare services in India over the next decade. Therefore,
efficient and cost effective delivery of healthcare services will be key. Use of technology
will be crucial to attaining the objective, in our assessment.
Ayushman Bharat: One of the key drivers of efficient healthcare services delivery
Under the scheme, there will be a benefit cover of INR0.5mn per family per year. 107mn
families are likely to be covered under the scheme. The beneficiaries will get cashless
benefits from public and private hospitals empanelled for the scheme. However, the cost
of treatment proposed under Ayushman Bharat is 15-20% lower than the prices for the
Central Government Health Scheme (CGHS). The CGHS provides comprehensive
medical care to government servants, pensioners and their dependents. Therefore,
success of Ayushman Bharat will depend on cost-effective delivery of healthcare
services.
Providing access to quality healthcare in rural areas
The healthcare infrastructure deficit is even starker in rural India and there is significant
shortage of manpower in rural India, as indicated in Fig. 48. Technology can help in
remote access and address the infrastructure deficit to a large extent. Private hospital
chains such as Apollo and Narayana Hrudalaya have also been expanding their
presence in remote locations using telecom technologies.
Fig. 48: Significant shortage of manpower in rural India

PHC stands for primary health centre, CHC stands for community health centre
Source: Deloitte and CII – ‘Medical Technology – Shaping Healthcare for all in India’, Nomura research
Remote access or telemedicine

The Indian Space Research Organisation (ISRO) is making a significant contribution to
telemedicine prospects in India. The satellite communication expertise of ISRO, coupled
with medical sciences and communication technology, has helped deliver medical
services in remote locations. In collaboration with ISRO, the government has established
more than 100 telemedicine centres in India. All established telemedicine nodes consist
of a VSAT system, videoconferencing equipment and telemedicine software along with
diagnostic instruments, such as the ECG machine and an X-ray scanner. Patient
information and disease details are collected at the telemedicine node and transmitted to
the specialist node, where a doctor examines and carries out consultation accordingly.
The interaction is also possible in real time.
74
Fig. 49: Telemedicine consultation network and process
Source: Apollo Hospitals
Some state governments have tied up with private players and operate the telemedicine
centres under PPP (Public Private Partnership) model. For instance, the Government of
Himachal Pradesh has tied up with Apollo Hospitals to run such centres. Typically a
telemedicine centre would cost ~USD10,000 to be set up, which is quite a large capital
to be employed and the same may not be available in a rural area. Therefore, some form
of government support would be required. Further, it is important to train the local
population to run the system. The telemedicine centres can also be used for the purpose
of medical education as these centres are linked to medical institution in cities.
Robot-assisted surgeries
Robotic surgeries use a very small tool attached to a robotic arm to conduct surgeries.
The advantage of robotic surgeries is that the incision is small, which leads to faster
healing and shorter hospital stays, which increases the infrastructure efficiency. There is
rapid expansion in robot-assisted surgeries in India. From less than 10 robots in 2011,
the number of robots in Indian hospitals has expanded to 50, carrying out 700 robot-
assisted surgeries a month, according to ET Healthworld. Private sector hospital
companies are actively deploying the technology to improve efficiency. As per company
disclosures, Apollo conducts ~1,000 robotic surgery a year and Fortis more than 200.
75
China – key trends include telemedicine China Health Care & Pharmaceuticals
and robotic surgery Stella Xing, CFA - NIHK

stella.xing@nomura.com
By end-November 2017, China had a total of 30,294 hospitals, of which 12,181 were +852 2252 6134
public hospitals and 18,113 private. In China, public hospitals admit most patients and
act as the pillar of the China healthcare system. Among the 30,294 hospitals, 2,311 are
Grade III hospitals, 8,285 are Grade II hospitals and the rest are Grade I or ungraded
hospitals. Grade III public hospitals are usually the pioneers to try out the latest
technology and serve as the role of regional/provincial training centres to promote the
technology to lower graded hospitals.
The government has been making efforts to establish a more intelligent healthcare
system. In April 2018, China’s State Council has issued a guideline to promote health
services using Internet technologies. The guideline on "Internet + healthcare" says
Internet technologies should be used to offer medical and public health services,
promote family doctor practices, improve drug supply and medical bill settlement, carry
out medical education, and provide artificial intelligence services. The guideline
encourages better sharing of health information, improving hospital management and
services, and strengthened oversight of medical services and data safety. It particularly
calls for the using of Internet technologies to improve the healthcare condition in poor
and border regions.
In reality, we have identified two key trends for the technology applied in the hospitals in
China: 1) telemedicine used to mitigate the uneven distribution of medical resources; and
2) robotic surgery used to significantly improve the accuracy and minimise the
invasiveness of the incisions.
Telemedicine
Historically, the distribution of medical resources in China is highly uneven – 1) sizeable
hospitals admit the most patients, while small clinics struggle to survive; 2) developed
provinces lead in hospital density and doctor density, while undeveloped provinces lack
of sufficient medical resources. To tackle the uneven distribution of medical resource,
China government has been aggressively pushing forward the telemedicine since 2010
(Fig. 50). Compared to other technologies applied in the hospitals, telemedicine is a
relatively mature technology.
Fig. 50: Development stage of telemedicine in China
Stage Year Description

Primary stage 1990s Some public hospitals started the study of telemedicine.
Rapid development 2010 & 2011 Government implemented two phases of regional telemedicine pilot
stage project construction, covering 500 county-level hospitals and 62
provincial-level Grade III hospitals in 22 central and western
provinces.
Expansion stage since 2012 China-Japan Friendship Hospital, the Second Affiliated Hospital of
Zhejiang University, First Affiliated Hospital of Zhengzhou University
took a positve lead in the telemedicine technology. The telemedicine
has been further expanded.
Telemedicine in China is led by Grade III hospitals and mainly includes the remote
diagnosis, live video consultation and patient records sharing between Grade III
hospitals and other lower graded hospitals. For example, the doctors in the primary
hospitals can share the test results or scan image to doctors in Grade III hospitals and
ask for remote diagnosis and consultation. This greatly improves the accuracy of
diagnosis and save the patients’ time and money. China-Japan Friendship Hospital, a
hospital directly affiliated with China’s Ministry of Health, is a front runner of telemedicine
program. Since 2015, more than 5,000 medical cases are treated under the telemedicine
program per year. Cumulatively, the telemedicine program saves the patients in remote
areas ~RMB70mn. In addition to the nationally well-known Grade III hospitals, some
provincial Grade III hospitals also play a key role in the development in telemedicine. For
example, Xinjiang and Yunnan benefit from the pilot project construction in 2010 & 2011
76
(Fig. 50) and each of the 2 provinces treats more than 10,000 medical cases per year
under the telemedicine program.
Looking ahead, along with the implementation of multi-level diagnostic and treatment
system, we think the scope of telemedicine in China hospitals will be further expanded.
Robotic surgery
Generally speaking, in terms of the application of robotic surgery, China is lagging
behind the developed countries, yet we have seen rapid growth in recent years. The
most widely used robot is Da Vinci produced by Intuitive. Currently, there are no
domestic robots directly competing with Da Vinci. Da Vinci significantly improves the
accuracy of the surgery and minimises the invasiveness of the incisions. Launched
China in 2006, Da Vinci is mainly applied in urology, thyroid, gynaecologic oncology,
gastrointestinal and paediatric surgeries.
By end-2017, 69 Da Vinci robots are used in China’s large Grade III hospitals and
premium private hospitals such as United Family Hospitals. Benefit from China’s large
population, the utilisation rate per Da Vinci robot ranks No.1 worldwide. In 2017, the
annual average surgery volume per Da Vinci robot in PRC is 393.6 (3 times of the global
average). Total surgery volume in PRC and Hong Kong amounts to more than 28,000,
implying 46% y-y growth.
The capital cost of a Da Vinci robot in China is RMB20mn. The annual cost of Da Vinci is
~RMB1.2mn, including procedure fee and fee for replacement of robot arms. ASP of one
Da Vinci surgery is RMB30-50k, which can hardly be afforded by medical insurance.
Thus, the pay-back period for the hospital is less than one and a half years.
In our view, the reclassification of Da Vinci from Type A medical equipment to Type B is
likely to accelerate the volume growth of the robot. Before April 2018, Da Vinci is a Type
A medical equipment. The purchase of Da Vinci robots is subject to the approval of
NHFPC (National Health and Family Planning Commission). Only certain hospitals with
the certificate & capability to use Type A medical equipment are eligible to purchase Da
Vinci. For the past several years, NHFPC only approved the purchases of ~10 Da Vinci
robots per year. Since April 2018, Da Vinci has been reclassified to Type B medical
equipment, the purchase of which is subject to the provincial Health & Family Planning
Commission. We think the purchase of Da Vinci will be boosted after the reclassification.
In May 2017, Fosun (2196 HK & 600196 CH, Not rated) established a joint venture
named Intuitive Fosun with Intuitive Surgical. Fosun owns 40% equity interest in Intuitive
Fosun while the rest are owned by Intuitive Surgical. The joint venture is principally
engaged in the sale of Da Vinci robots in China. In our view, riding on the robust demand
of robotic surgery, Intuitive Fosun will contribute increasing profitability to Fosun.
On the other hand, the development domestic robots are in a relatively early stage.
Various domestic companies choose to cooperate with Grade III hospitals with strong
R&D capability to develop their own robots for surgical use. Most of them are still in the
R&D stage. Some front runners launched robots for certain specialised therapeutic area,
including Beijing Remebot’s Remebot (Neuro) and Jinshan Tech’s Capsule Endoscopy
System II (Digestive tract).
Going forward, thanks to the robust demand, we think the robotic surgery will enjoy
significant growth. Several key catalysts could include: 1) the price of robotic surgery
becoming lower due to the participation of more domestic players; and 2) certain
surgeries for major diseases being added to reimbursement list in the future.
77
Philippines – robotic surgery to prosper Philippines Consumer related
The Philippines has 960 private hospitals and 476 public hospitals that will cater to its Dante Tinga Jr - BDO-NS
dante.tingajr@nomura.com
106.5mn population. Public healthcare in the Philippines lags behind its regional +632 878 4969
counterparts in terms of technology. Privately owned hospitals still provide health care to
most Filipinos.
Metro Pacific Investments (MPI PM, Buy) is the only listed company with material
exposure (10% of NAV) to the Philippine health care sector. Subsidiary Metro Pacific
Hospital Holdings, Inc. (MPHHI) operates the largest private hospital chain in the
Philippines. At present, MPHHI’s portfolio consists of 14 hospitals, and over 3,200 beds.
The target is to get to 5,000 beds. MPHHI is 86% owned by MPI and 14% by Singapore
sovereign wealth fund GIC Private Ltd.
Broadly speaking, MPHHI is working on synergy projects to centralise hospital
operations particularly in the area of standardised and integrated information technology
systems (RFID-based Patient Systems, Electronic Medical Records, Electronic
Prescriptions, and Telehealth).
Robotic surgery expected to prosper over the next 5 to 10 years
With regard to robotics in surgery, currently there are only 2 hospitals that offer robotics
surgery. The Medical City (not listed) was first to use this in 2010. St. Luke’s Medical
Center (not listed) followed later on. Robots are being used for complicated procedures
in the field of urology, gynaecology, thoracic, head, neck, oral surgery and colorectal
surgery. Currently, the Philippines only has 3 robots compared to about 183 robots in
Japan. The use of robotics for surgery in the Philippines is quite costly for the patient but
it is less invasive and has lesser complications. Doctors expect this procedure to prosper
in the next 5-10 years as patients are becoming more aware of the technology and its
benefits.
Use of Electronic Medical Records becoming more popular
Electronic Medical Records (EMR) are becoming more popular and increasingly being
used in private clinics. These systems can facilitate workflow and improve quality of
patient care and safety. Some physicians and smaller clinics still prefer handwritten
prescriptions but use of EMRs is seen to increase in the next few years.
78
Indonesia – investment impacted by UHC Indonesia Consumer Related
Indonesia’s hospitals are far behind its peers in terms of technology, and we expect this Deidy Wijaya, CFA - PTNSI
deidy.wijaya@nomura.com
to remain the case for the foreseeable future. As of 1Q18, there are only 1,027 public +62 21 2991 3345
and 1,800 private hospitals in Indonesia, serving ~260m population. Beds per 1,000
population ratio is at ~1.3x which is significantly below its peers such as Thailand (2.3x)
and Malaysia (1.9x). Given that Indonesia is still lacking hospitals, the current focus is
still on addition of new hospitals, rather than investing heavily in technology. Moreover,
with the introduction of Universal Healthcare Coverage (UHC) in 2014, private hospitals
in Indonesia are faced with both opportunity as well as challenges. Private hospitals that
participate in the UHC (which at the moment remains optional) are seeing better market
share and patient volume growth. However, this comes at the expense of lower
profitability as well as higher working capital needs (due to the long reimbursement
period). Hence, capex and opex management are becoming more crucial for these
hospitals. Meanwhile, the upper segment of the population prefers to go abroad for
treatment as they perceive the overseas medical service to be superior. Based on data
from Singapore Tourism Board and Malaysia Healthcare Travel Council, 47.2% and
56.8% of the total medical tourists in Singapore and Malaysia respectively are from
Indonesia. This implies a big potential for the domestic hospitals (to bring back the
patients back to Indonesia), but it is likely to take time as Indonesia needs to solve
several bottlenecks such as the lack of specialists, insufficient funding as well as lack of
training for its medical professionals.
Robotic surgery is currently available in only one hospital in Indonesia
Most of the technologies that we discussed in the report are not available in Indonesia,
due to the reasons mentioned above. However, robotic surgery was actually introduced
as early as 2012 in Rumah Sakit Bunda (unlisted) in Indonesia. Since then, no other
hospitals in Indonesia has adopted this technology, likely due the lack of popularity and
unattractive return on investment.
Siloam’s technology is the most advanced among its peers
Among the private hospital groups, Siloam (SILO IJ, Buy) is the most technologically
advanced. SILO has a relatively strong focus on technological investment and also
provides Digital Telemedicine “Hub and Spoke”. SILO equips its hospitals with state-of-
the-art facilities and it also carry the first and only Gamma Knife in Indonesia, installed in
2012. SILO has previously mentioned that it has the plan to use Electronic Health
Record (EHR) in the future.
79
IHH Healthcare Bhd IHHH.KL IHH MK
Upgrade to Buy Global Markets Research

14 June 2018
We see proactive investments in technology spurring
Rating
growth in revenue intensity in all home markets Up from Neutral Buy
Target Price
Action: Upgrade to Buy on rising revenue intensity in home markets Increased from 6.20 MYR 7.10
We like IHH Healthcare for its strong franchise and diversified operations in its
Closing price
four home markets and upgrade to Buy as: 1) we see rising revenue intensity 11 June 2018 MYR 6.09
in all of its home markets, especially in Singapore and Turkey, due to the
company’s proactive investments in technologies such as telemedicine, Potential upside +16.6%
robotic surgery and hybrid operating rooms. These have allowed IHH’s
hospitals to differentiate themselves from peers and attract medical travellers Anchor themes
coming for more complex surgeries; 2) we believe the Gleneagles Hong Kong As disease profile shifts towards
hospital is set to break even in 2018F. We expect growth contribution from an increase in chronic conditions
local patients and medical travellers, especially from South China, leading to amid an ageing population, we
higher revenue intensity; and 3) we see geopolitical concerns over Turkey see an increase in the role of
abating, and while the volatility of its currency TRY remains a concern, we technology in the next phase of
note that the underlying operations remain strong. the evolution of hospitals.
Downside risks: Delay in break-even of HK hospital, Turkey operations Nomura vs consensus
We see downside risks from a delay in the break-even of the Gleneagles Hong Our FY19F profit estimates are
Kong hospital and from further depreciating of TRY vs. MYR. 4% above consensus as we
Valuation: Upgrade to Buy and raise target price to MYR7.10 factor in higher revenue intensity
We reduce our revenue and net profit estimates for FY18F by 1% and 3%, in IHH's home markets.
respectively, due to the depreciation of the TRY, while we raise our FY19F
EBITDA and net profit estimates by 2% and 3%, respectively, as IHH’s
Research analysts
hospitals benefit from a higher revenue intensity. We value the company on Healthcare/Pharmaceutical
sum-of-the parts: 1) the hospital business in Singapore, Malaysia, Turkey and
India at 18x FY19F EV/EBITDA; 2) IMU Health at 14x FY19F EV/EBITDA; 3) Raghavendra Divekar, CFA - NSC
raghavendra.divekar@nomura.com
equity stakes in healthcare companies at market value; and 4) hospital projects in +81 3 6703 1229
Greater China using DCF. We raise our TP to MYR7.10, implying 16.6% upside
from current levels for a target FY18F EV/EBITDA of 22.7x. The share is trading
at FY18F EV/EBITDA of 20.2x, which is at a discount to regional peers at 24x.
Year-end 31 Dec FY17 FY18F FY19F FY20F

Currency (MYR) Actual Old New Old New Old New
Revenue (mn) 11,143 12,627 12,515 14,411 14,132 16,293 15,915

Reported net profit (mn) 970 761 740 1,144 1,173 1,524 1,485
Normalised net profit (mn) 970 761 740 1,144 1,173 1,524 1,485
FD normalised EPS 11.77c 9.24c 8.98c 13.89c 14.23c 18.50c 18.03c
FD norm. EPS growth (%) 58.4 -21.5 -23.7 50.3 58.5 33.2 26.7
FD normalised P/E (x) 51.7 N/A 67.8 N/A 42.8 N/A 33.8
EV/EBITDA (x) 18.9 N/A 20.2 N/A 16.2 N/A 14.0
Price/book (x) 2.1 N/A 2.0 N/A 2.0 N/A 1.9
Dividend yield (%) 0.5 N/A 0.6 N/A 0.7 N/A 0.8
ROE (%) 4.2 3.1 3.0 4.6 4.7 5.9 5.7
Net debt/equity (%) 3.0 net cash net cash net cash net cash net cash net cash
Source: Company data, Nomura estimates
Key company data: See next page for company data and detailed price/index chart.
Nomura | IHH Healthcare Bhd 14 June 2018
Key data on IHH Healthcare Bhd

Relative performance chart Cashflow statement (MYRmn)
Year-end 31 Dec FY16 FY17 FY18F FY19F FY20F
EBITDA 2,189 2,783 2,554 3,106 3,469
Change in working capital 656 438 153 184 237
Other operating cashflow -911 -960 -199 -348 -441
Cashflow from operations 1,934 2,261 2,508 2,942 3,265
Capital expenditure -2,084 -1,433 -800 -816 -832
Free cashflow -150 828 1,708 2,126 2,433
Reduction in investments -164 -77 -62 -63 -65
Net acquisitions
Dec in other LT assets 89 1,291 -34 -35 -36
Inc in other LT liabilities 1,098 75 146 153 161
Adjustments -610 45 65 69 72
CF after investing acts 262 2,162 1,824 2,250 2,566
Source: Thomson Reuters, Nomura research Cash dividends -420 -446 -456 -507 -560
Equity issue 2 3 0 0 0
Notes: Debt issue 540 -458 -1,000 -1,000 0
Convertible debt issue 0 0 0 0 0
Others 81 2,374 -417 -598 -496
CF from financial acts 203 1,473 -1,873 -2,106 -1,056
Performance Net cashflow 465 3,635 -49 144 1,510
(%) 1M 3M 12M Beginning cash 1,978 2,443 6,079 6,030 6,173
Absolute (MYR) 0.7 0.8 0.2 M cap (USDmn) 12,593.5 Ending cash 2,443 6,079 6,030 6,173 7,684
Absolute (USD) -0.3 -1.1 7.1 Free float (%) 21.9 Ending net debt 5,044 715 -236 -1,380 -2,890
Rel to MSCI Malaysia 3.9 3.7 1.5 3-mth ADT (USDmn) 9.7
Balance sheet (MYRmn)
Income statement (MYRmn) As at 31 Dec FY16 FY17 FY18F FY19F FY20F
Year-end 31 Dec FY16 FY17 FY18F FY19F FY20F Cash & equivalents 2,443 6,079 6,030 6,173 7,684
Revenue 10,022 11,143 12,515 14,132 15,915 Marketable securities 7 7 7 7 7
Cost of goods sold -8,633 -9,338 -10,984 -12,094 -13,560 Accounts receivable 1,442 1,490 1,646 1,859 2,093
Gross profit 1,389 1,805 1,531 2,038 2,354 Inventories 253 282 323 342 402
SG&A 0 0 0 0 0 Other current assets 454 286 289 293 296
Employee share expense 0 0 0 0 0 Total current assets 4,599 8,143 8,295 8,674 10,482
Operating profit 1,389 1,805 1,531 2,038 2,354 LT investments 3,033 3,110 3,172 3,236 3,300
EBITDA 2,189 2,783 2,554 3,106 3,469 Fixed assets 13,141 13,142 12,708 12,599 12,463
Depreciation -745 -916 -957 -999 -1,042 Goodwill 11,076 10,692 10,692 10,692 10,692
Amortisation -55 -62 -65 -69 -72 Other intangible assets 2,490 2,278 2,213 2,144 2,072
EBIT 1,389 1,805 1,531 2,038 2,354 Other LT assets 2,850 1,559 1,592 1,627 1,663
Net interest expense -528 -642 -630 -458 -352 Total assets 37,188 38,924 38,674 38,972 40,673
Associates & JCEs 17 2 2 2 2 Short-term debt 634 690 690 690 690
Other income Accounts payable 2,612 2,812 3,070 3,375 3,774
Earnings before tax 878 1,165 904 1,583 2,004 Other current liabilities 395 543 639 753 889
Income tax -270 -335 -199 -348 -441 Total current liabilities 3,642 4,045 4,400 4,818 5,353
Net profit after tax 608 830 705 1,234 1,564 Long-term debt 6,853 6,104 5,104 4,104 4,104
Minority interests 4 140 35 -62 -78 Convertible debt 0 0 0 0 0
Other items 0 0 0 0 0 Other LT liabilities 2,800 2,875 3,021 3,174 3,335
Preferred dividends 0 0 0 0 0 Total liabilities 13,295 13,023 12,524 12,096 12,792
Normalised NPAT 612 970 740 1,173 1,485 Minority interest 1,907 1,852 1,608 1,451 1,299
Extraordinary items 0 0 Preferred stock 0 0 0 0 0
Reported NPAT 612 970 740 1,173 1,485 Common stock 8,232 16,463 16,463 16,463 16,463
Dividends -247 -247 -288 -330 -412 Retained earnings 3,276 3,949 4,368 5,135 6,142
Transfer to reserves 365 723 452 843 1,073 Proposed dividends 0 0 0 0 0
Valuations and ratios Other equity and reserves 10,478 3,637 3,711 3,828 3,977
Reported P/E (x) 81.9 51.7 67.8 42.8 33.8 Total shareholders' equity 21,986 24,049 24,542 25,426 26,582
Normalised P/E (x) 81.9 51.7 67.8 42.8 33.8 Total equity & liabilities 37,188 38,924 38,674 38,972 40,673
FD normalised P/E (x) 81.9 51.7 67.8 42.8 33.8
Dividend yield (%) 0.5 0.5 0.6 0.7 0.8 Liquidity (x)
Price/cashflow (x) 25.9 22.2 20.0 17.1 15.4 Current ratio 1.26 2.01 1.89 1.80 1.96
Price/book (x) 2.3 2.1 2.0 2.0 1.9 Interest cover 2.6 2.8 2.4 4.4 6.7
EV/EBITDA (x) 25.9 18.9 20.2 16.2 14.0 Leverage
EV/EBIT (x) 40.7 29.2 33.6 24.6 20.6 Net debt/EBITDA (x) 2.30 0.26 net cash net cash net cash
Gross margin (%) 13.9 16.2 12.2 14.4 14.8 Net debt/equity (%) 22.9 3.0 net cash net cash net cash
EBITDA margin (%) 21.8 25.0 20.4 22.0 21.8
EBIT margin (%) 13.9 16.2 12.2 14.4 14.8 Per share
Net margin (%) 6.1 8.7 5.9 8.3 9.3 Reported EPS (MYR) 7.43c 11.77c 8.98c 14.23c 18.03c
Effective tax rate (%) 30.7 28.7 22.0 22.0 22.0 Norm EPS (MYR) 7.43c 11.77c 8.98c 14.23c 18.03c
Dividend payout (%) 40.4 25.5 39.0 28.1 27.7 FD norm EPS (MYR) 7.43c 11.77c 8.98c 14.23c 18.03c
ROE (%) 2.8 4.2 3.0 4.7 5.7 BVPS (MYR) 2.67 2.92 2.98 3.09 3.23
ROA (pretax %) 4.1 5.3 4.7 6.2 7.2 DPS (MYR) 0.03 0.03 0.04 0.04 0.05
Growth (%) Activity (days)
Revenue 18.5 11.2 12.3 12.9 12.6 Days receivable 48.9 48.0 45.7 45.3 45.4
EBITDA -1.3 27.1 -8.2 21.6 11.7 Days inventory 10.0 10.4 10.1 10.0 10.0
Normalised EPS -34.6 58.4 -23.7 58.5 26.7 Days payable 109.6 106.0 97.7 97.3 96.5
Normalised FDEPS -34.6 58.4 -23.7 58.5 26.7 Cash cycle -50.7 -47.6 -41.9 -42.0 -41.0
Source: Company data, Nomura estimates Source: Company data, Nomura estimates
81
Technology investments to pay off

IHH Healthcare is the largest private hospital operator in Asia in terms of operational
beds and operates in four home markets – Singapore, Malaysia, Turkey and India. The
company’s hospitals in Singapore, led by its new Mount Elizabeth Novena hospital, are
major hubs for medical travellers who account for ~33% of its revenue. We see two key
ways in which technology investments can help drive the growth of the company’s
hospitals: 1) technologies such as telemedicine and remote patient monitoring can help
hospitals reduce the distance barriers between doctors and patients and help to attract
new patients including medical travellers; 2) technologies such as robotic surgery and
hybrid operating rooms can allow hospitals to conduct more complex surgeries, which
tend to be more revenue-intensive and also allow them to differentiate themselves from
peers. With the growth in the overall number of medical travellers coming to Singapore
stagnating over the past few years and competition arising from hospitals in Malaysia,
Thailand and India, we believe hospitals in Singapore should focus on medical travellers
needing to undertake complex procedures. Here, we see IHH’s investments in the latest
and most cutting edge technologies paying off as it looks to maintain its position as one
of the pre-eminent destinations for medical tourists.
IHH has also seen its proactive investments in technology paying off in other regions
including its hospitals in Malaysia and Turkey. Over the past few years, its Malaysian
hospitals have emerged as major destinations for medical travellers, especially from Indo
China and the Aceh region of Indonesia. In Turkey, the company’s operations have
benefited from the hub and spoke model with major hub hospitals including the
Acibadem Altunizade benefiting from feeder hospitals in Turkey and medical travellers
coming in from Europe. Currently, we estimate that foreign patients contribute ~10% of
the revenue for the company’s Malaysia operations and 5~10% of its Turkey operations
and we expect this to grow as the company benefits from conducting more complex
cases as a result of its proactive investments in technology.
Attracting new patients through the use of telemedicine
IHH was one of the first private healthcare operators in Singapore to use telemedicine
solutions in their primary care segment in Singapore. While this is still in a nascent stage,
we understand that it is largely being used by foreign patients, especially from Indonesia,
for follow-up medical advice and post-operative care since these patients cannot travel to
Singapore often. We see an increasing use for telemedicine in organising and
scheduling remote consultations and between prospective patients and specialist. Such
health assessments can be done at the representative offices set up by IHH across the
world and the use of telemedicine can help doctors make informed decisions about the
healthcare needs of the patients despite the physical distance. Patients can undergo
additional tests and diagnostics in their home country and can then make a decision in
consultations with their doctors on travelling for further treatment if needed. We believe
this provides a relatively inexpensive way for IHH’s hospitals to attract medical travellers,
reduce the length of stay of such patients and increase their revenue intensity by
focusing on patients who need more complex procedures.
Increasing revenue intensity – robotic surgery and hybrid operating rooms
The average revenue intensity for the company’s hospitals in Singapore has grown at a
CAGR of 7% over FY09-17, driven by medical travellers coming in for more complex and
revenue-intensive procedures. We believe the ability of the company’s Singapore
hospitals to undertake such surgeries is underpinned by their investments in proven
cutting edge technologies. The Mount Elizabeth Novena hospital in Singapore is one of
the few private hospitals in Singapore to provide robotic surgery and have a hybrid
operating room for conducting more complex revenue-intensive procedures. The hospital
has also piloted the use of cognitive technology to optimise its ICU department. These
investments have also helped the Novena hospital to brand itself as being at the
forefront of using the latest and most innovative medical technology. This has allowed
the hospital to charge premium rates as compared to other private hospitals in the region
and has resulted in its EBITDA margins exceeding those of the company’s other
hospitals.
82
As IHH’s hospitals in Malaysia and Turkey also look to increase the share of medical
tourists, we have seen an increase in the investments in newer technological innovations
and instruments in those regions as well. IHH’s Gleneagles Kuala Lumpur hospital is one
of the few hospitals in Malaysia to provide robotic surgery, while we understand that
there are more than five surgical robots in Acibadem. The Acibadem Altunizade is one of
the few hospitals in the region to have a hybrid operating room allowing doctors to
conduct more specialised and complex surgeries. We see the use of these technologies
helping to drive up the revenue intensity in these regions.
Proton beam therapy at Novena to be the first one in South East Asia
Proton beam therapy is a type of radiotherapy that uses beams of protons to destroy
cancerous cells. As compared to conventional radiotherapy, which apart from destroying
cancer cells also damages the surrounding tissue, proton beam therapy stops once it
reaches the cancerous cells and thus does much less damage to the surrounding tissue.
These machines use a particle accelerator to speed up the protons and thus need to be
housed in a concrete bunker that serves as a radiation shield. Due to this, the total cost
of installing such a machine can reach ~SGD100mn. There are currently no proton beam
therapy systems in South East Asia with the first ones being installed in Singapore at
IHH’s Mount Elizabeth Novena and at the National Cancer Centre Singapore (NCCS) at
Outram, both of which are expected to come online in 2021.
Proton beam therapy can be useful for the treatment of brain cancer, especially in
children and can also be used for prostate, oesophagus and breast cancer. The NCCS
expects to treat 150 patients in the first year before building to about 1,000 patients
annually. While we expect the utilisation of the proton beam device at IHH to be less
than half that at the NCCS, we believe the machine could help attract medical travellers
and local patients for cancer treatments to the hospital, further build its brand and help to
raise its revenue intensity.
Fig. 51: Proton beam therapy
Source: Penn Medicine, Nomura research
83
IHH hospitals benefited from technology investments in

FY15~17
To better understand the role that technological improvements play, let us look at the
growth in revenue per inpatient for various procedures at three of the major private
hospitals in Singapore – IHH Healthcare’s Mount Elizabeth Novena hospital (MEN),
Mount Elizabeth Hospital (MEH) and Raffles Hospital (RH). Amongst these hospitals,
MEN uses the most advanced technological instruments and devices, including robotic
surgery and hybrid operating rooms, followed by MEH and then RH. According to data
from the Ministry of Health, this emphasis on technology has borne results with MEN
seeing a higher growth in revenue per inpatient over FY15-17. IHH’s other major
hospital, MEH, has also seen higher growth for most procedures during FY15-17 as
compared to RH.
Fig. 52: IHH hospitals have seen a higher revenue per inpatient CAGR over FY15~17 as compared to Raffles Hospital
25%
21%
20%
17%
15% 14%
14%
13%
12%12% 12% 12%
12%
11%
10% 10%
10%
7%
7%
6% 6%
5% 5%
5% 5%
3%
2%
2% 2%
1%
1%
0% -2% -3%-5%
URTI
Kidney and UTI

UT Cystoscopy
Normal childbirth
Urinary stones
Colonoscopy
Haemorrhoidectomy
Gastroenteritis
Benign lesion surgery (FRS)
Viral illnesses
-5%
-10%
Note: Growth rate is calculated based on the middle bill size. FRS - Female Reproductive System, UT – Urinary tract, URTI – Upper respiratory tract infection, UTI – UT infection.
The Mount Elizabeth Novena (MEN) hospital started operations only in 2012 and was
fully ramped up to its full capacity of 333 beds in 2017. In comparison, the 345-bed
Mount Elizabeth Hospital (MEH) has been operating since 1979. Despite this, the
number of high-revenue-intensive surgeries at MEN has already surpassed that of MEH
in many key surgery types, including for spine, shoulder and fractured joints. We believe
it is largely the higher level of technology present at MEN which allows it to do more
revenue-intensive complex surgeries and to attract medical travellers in need of such
surgeries. On the other hand, according to data from the Singapore Ministry of Health,
the only major revenue-intensive surgery that appears to have been done at the Raffles
Hospital is the surgical removal of benign lesions from the female reproductive system.
84
Fig. 53: IHH hospitals have conducted more major surgeries during Jul 2016-Jun 2017 as compared to Raffles Hospital

350
300
250
200
150
100
50
Gall Bladder
Nose
Prostate
Spine
Sinus
Breast
Shoulder
Bening lesions - FRS
Hysterectomy
Spinal body fusion
Tonsillectomy
Knee reconstruction
Fractured joints
Thyroid
Note: The surgeries are ordered in terms of revenue intensity
Rising use of technology to drive revenue intensity in all home markets

As discussed above, IHH has continued to make proactive investments in technology to
attract patients including medical travellers and to upgrade its capability to do complex
revenue-intensive surgeries. In Singapore, the most profitable market for IHH, revenue
intensity has recorded a CAGR of 7% over FY09~17 largely driven by medical travellers
and its new Mount Elizabeth Novena Hospital. With the hospital being fully ramped up in
FY17, we expect revenue intensity recording a CAGR of 6% during FY17~20F as shown
in Fig. 54.
Fig. 54: Singapore – revenue intensity to record a 6% CAGR Fig. 55: Malaysia – revenue intensity to record a 10% CAGR
(MYRmn) Revenue (LHS) (MYRmn) Revenue (LHS)
Revenue intensity growth (%) (RHS) Revenue intensity growth (%) (RHS)
6,000 14% 3,000 14%
Historical CAGR (RHS) Historical CAGR (RHS)
5,000 12% 2,500 12%
10% 10%
4,000 2,000
8% 8%
3,000 1,500
6% 6%
2,000 1,000
4% 4%
1,000 2% 500 2%
0 0% 0 0%
FY14 FY15 FY16 FY17 FY18F FY19F FY20F FY14 FY15 FY16 FY17 FY18F FY19F FY20F
Note: Revenue intensity = Average revenue per patient day Note: Revenue intensity = Average revenue per patient day
85
For Malaysia, revenue intensity has recorded a CAGR of 9% during FY09~17, although
this has been largely driven by the high healthcare inflation in the country. In FY17~20F,
we see a dual impact of healthcare inflation and rising revenue intensity as IHH’s
Malaysian hospitals including Gleaneagles Kuala Lumpur and Gleneagles Medini attract
medical travellers from Indonesia and Indo China, resulting in revenue intensity
recording a 10% CAGR as shown in Fig. 55.
The revenue intensity for Acibadem has recorded a historical CAGR of 5%. As the
company has continued to upgrade its hub hospitals including the newly-opened
Acibadem Altunizade, we see an increase in the number of medical travellers coming for
treatment to Turkey. Moreover, given the current inflationary environment in Turkey, we
see healthcare inflation rising above historical levels and see overall revenue intensity
recording a CAGR of 10% over FY17~20F as shown in Fig. 56.
IHH’s operations in India are largely focused on domestic patients needing complex
surgeries including transplants and gastro-intestinal procedures. We see revenue
intensity for the India operations growing at historical levels of 10%, as shown in Fig. 57.
Fig. 56: Acibadem – revenue intensity to record 10% CAGR Fig. 57: India – revenue intensity to record 10% CAGR
Revenue (LHS) Revenue (LHS)
(MYRmn) (MYRmn)
Revenue intensity growth (%) (RHS) Revenue intensity growth (%) (RHS)
6,000 12% 1,200 20%
Historical CAGR (RHS) Historical CAGR (RHS)
10%
5,000 1,000
8% 15%
4,000 800
6%
3,000 4% 600 10%
2%
2,000 400
0% 5%
1,000 200
-2%
0 -4% 0 0%
FY14 FY15 FY16 FY17 FY18F FY19F FY20F FY16 FY17 FY18F FY19F FY20F
Note: Revenue intensity = Average revenue per patient day Note: Revenue intensity = Average revenue per patient day
86
Gleneagles Hong Kong on track to break even in FY18F

IHH has a 60% holding in the Gleneagles Hong Kong (GHK) hospital which was opened
in March 2017. Despite having to open all 500 beds of the hospital from the beginning,
management has been prudent in ensuring that other costs have been kept in check by
delaying the ramp up of specialities such as oncology, cardiology and obstetrics over the
course of 2017. This has resulted in start-up losses at the hospital continuing to narrow
from MYR85mn in 1Q17 to MYR46.6mn in 1Q18 as shown in Fig. 58. We see
occupancy rates rising from 12-14% in 1Q18 to 25% in FY18F, largely led by local
patients. We expect the hospital to also target medical travellers from the populous
southern part of China, which is closer to it geographically. Overall, we see the hospital
on track to break even in FY18F.
Fig. 58: Gleneagles Hong Kong hospital’s losses have continued to narrow
(MYRmn)
100
80
60
40
20
0
1Q17 2Q17 3Q17 4Q17 1Q18
Source: Company data
Inpatient revenue intensity already in line with Singapore hospitals

GHK currently has a staff strength of over 1,000, which includes nurses, administration
staff, resident doctors and about 45 doctors seconded from the Hong Kong University. In
1Q18, operating room cases rose 32% q-q with the hospital conducting 20 surgeries
daily with complex surgeries accounting for more than half of the cases. Overall, patient
volumes rose 53% q-q, while inpatient volumes rose 65% q-q. According to
management, in-patient volumes’ intensity is already in line with its Singapore hospitals,
which is not surprising given that this is the first private hospital opened in Hong Kong in
over 20 years which had resulted in significant demand for operating theaters.
GHK package rates are above public hospital rates in Singapore
Under its agreement with the government, GHK has to reserve 70% of its beds for Hong
Kong citizens and provide citizens with fixed price all-inclusive medical packages of 50%
of the beds. Currently, GHK provides packages for about 50 procedures encompassing
endoscopic, ENT, general surgery, gynaecological, ophthalmic, orthopaedic and
urological procedures. Patients utilising the package rates will be admitted into two-bed
rooms and the packages include a defined length of stay, doctor’s fees, room charges,
diagnostic and treatment procedures and operating theatre charges. There is an
additional 20% charge for patients with intermediate risks. As shown in Fig. 59, the GHK
package rates are generally higher than the corresponding rates in public hospitals in
Singapore, but generally lower than the rates for private hospitals.
87
Fig. 59: Comparison of GHK packaged rates vs. public and private hospitals in Singapore
Hong Kong Singapore
GHK Public Private
Procedure Procedure
(HK$) (HK$) (HK$)
Gastroscopy (OGD) (IV Sedation) (Day surgery) 13,400 Gastroscopy (Day surgery) 1,796 10,331
Colonoscopy (MAC) (Day surgery) 16,700 Colonoscopy (Day surgery) 3,798 16,236
Tonsillectomy & Endoscopic Suction Diathermy Adenoidectomy 39,187 Tonsillectomy and Adenoidectomy 39,763 62,486
Hernia Repair (Unilateral) (Laparoscopic) 55,470
Hernia repair 32,984 95,986
Hernia Repair (Unilateral) (Open) 38,800
Circumcision (28 days of age or less) 21,900 Circumcision (Day surgery) 2,477 24,384
Haemorrhoidectomy (Conventional) 31,200
Haemorrhoidectomy 21,103 59,627
Haemorrhoidectomy (Stapled) 43,970
Hysterectomy (Abdominal) 67,600
Hysterectomy 72,377 136,912
Hysterectomy (Vaginal) 61,540
Ovarian Cystectomy (Laparoscopic) (Unilateral) 66,700 Surgical removal of benign lesions from ovary, uterus and
54,045 107,568
Ovarian Cystectomy (Open) (Unilateral) 58,600 neighbouring tissues like uterine polyps and ovarian cysts
Cataract – Phacoemulsification & Intraocular Lens Implantation (GA) 31,300
Cataract (day surgery) - 38,871
Cataract – Phacoemulsification & Intraocular Lens Implantation (LA) 21,000
Knee Arthroscopy (Diagnostic) 44,600 Knee arthroscopic surgery 69,108 92,400
Total Knee Replacement 26,000 Knee replacement surgery 128,477 -
Carpal Tunnel Release (LA) 21,000
Carpal tunnel release surgery (Day surgery) 4,843 -
Carpal Tunnel Release (GA) 30,800
Note: For Singapore, we use the Middle bill size. For public hospital rates, we use Ward A at the Singapore General Hospital, and for private hospital rates, we use the two
bedded rates at IHH’s Mount Elizabeth Hospital
Source: Company data, Singapore MoH, Nomura research
We expect the radiology department to be a significant revenue driver

We expect GHK’s radiology department to be a significant revenue driver for the hospital
and we note that IHH has invested in state-of-the-art new machines including two
Siemens MRI machines, a 3 Tesla and a 1.5 Tesla and two CT scanner machines, a 320
slice and an 80 slice machine. With the hospital having been empanelled by most of the
major insurance companies in Hong Kong, we expect utilisations to continue rising.
Significant space has also been reserved for the radiology and diagnostics departments
to grow in the future. We understand that management is also considering installing a
proton beam machine in the future. As shown in Fig. 60, the radiology rates at the GHK
hospital are at 10-15% discounts to the Hong Kong Sanatorium and Hospital, the
premium for-profit hospital on Hong Kong Island. As utilisations of the radiology
department rise, we believe pricing at the GHK will be comparable with the Hong Kong
Sanatorium and Hospital.
Fig. 60: Comparison of pricing at GHK and Hong Kong Sanitorium and Hospital
Gleneagles Hong Kong Hong Kong Sanatorium and Hospital
Rooms Daily rate (HK$) Rooms Daily rate (HK$)
VIP Suite On request Suite (with companion room) 23,000
Junior Suite 8,000 Suite (without companion room) 12,600
Private Single 3,600 Private room (Type A) 5,600 - 6,600
Semi-private Single 2,000 Private room (Type B) 3,800 - 4,000
Semi-private Double 1,450 Semi-private single room 2,300 - 2,700
Standard 900 General ward (3-6 beds) 1,060 - 1,630
Radiology Outpatient charge (HK$) Radiology Outpatient charge (HK$)
Computed Tomography (CT Scan) Plain With contrast Plain With contrast
Brain 1,830 3,350 Brain 2,800 4,960
Orbits 3,450 5,310 Orbits 4,610 7,650
Thorax 2,740 5,270 Thorax 3,970 7,340
Abdomen 2,750 5,450 Abdomen 3,510 6,490
Magnetic Resonance Imaging (MRI) Plain With contrast Plain With contrast
Brain 5,570 8,610 Brain 8,090 12,940
Orbits 5,570 8,610 Orbits 8,090 12,940
Abdomen 6,080 9,120 Abdomen 9,400 14,290
Pelvis 6,080 9,120 Pelvis 9,400 14,290
Ultrasound
Thyroid 1,120 Brain 1,310
Neck 1,370 Neck 3,480
Abdomen and pelvis 2,980 Abdomen and pelvis 5,590
Aorta 1,670 Aorta 2,170
Source: Gleneagles Hong Kong, Hong Kong Sanatorium and Hospital
88
Turkey: strong operations masked by TRY’s volatility

IHH Healthcare operates in Turkey and Eastern Europe through its 60% stake in
Acibadem, which was acquired in 2012. One of the key reasons for our earlier cautious
view on IHH was due to our concerns over the impact of the geopolitical environment in
Turkey on Acibadem. While this concern has recently abated recently, it has been
replaced by the ongoing volatility in the TRY vs. major international currencies including
the USD, Euro and the MYR. This has had a two-fold impact on the Turkish operations:
1) Acibadem currently has the equivalent of ~USD600mn of debt denominated in USD
and euro. The sharp depreciation of the TRY vs. these currencies has resulted in
Acibadem reporting significant losses arising from the translation of its non-TRY
denominated borrowings/payables net of its non-TRY denominated
cash/receivables. These losses totalled MYR379.2mn in FY17 and came in at
MYR159.8mn in 1Q18. With the TRY having declined 14.4% vs. the USD and 9.3%
vs. the Euro in 2Q18-till date, as shown in Fig. 61, we see the magnitude of this loss
peaking in 2Q18F. These losses coupled with the high interest costs related to the
foreign currency debt have resulted in Acibadem reporting losses during FY15~17.
Fig. 61: TRY has depreciated sharply vs. the USD, euro and MYR since 2016
6 USD (LHS) EUR (LHS) MYR (RHS) 1.5
1.4
1.3
5
1.2
1.1
4 1.0
0.9
0.8
3
0.7
0.6
2 0.5
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18
Source: Bloomberg, Nomura research
2) The continued depreciation of the TRY vs. MYR has given a perception of lower
growth for Turkish operations despite strong constant currency growth for the
Turkish operations. A case in point, in 1Q18, the revenue intensity for Acibadem
declined 8.6% y-y in MYR terms, while, in constant currency terms, it actually grew
14.4% y-y.
Fig. 62: Acibadem: Strong underlying operations

('000s) Inpatient admissions ('000s) (TRY)
250 Average inpatient revenue (TRY) (LHS) 9,000
8,000
200 7,000
6,000
150
5,000
4,000
100
3,000
50 2,000
1,000
0 0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: Company data, Nomura research
89
Despite the continued volatility of the TRY, the underlying operations of Acibadem
remain strong with continued growth in inpatient admissions coming from the expansion
in Bulgaria and the ramping up of new hospitals, including the Acibadem Altunizade. The
average revenue per inpatient admission has also continued to grow, in constant
currency terms as shown in Fig. 62, due to an increase in foreign patients and more
complex cases undertaken.
Management taking proactive steps to manage Acibadem’s debt
Given the sharp depreciation of the TRY vs. global currencies in YTD18, IHH has taken
a number of proactive steps to address the debt concerns for Acibadem, including:
1) Limiting the capital expenditure for new hospitals – we understand that Acibadem has
decided to defer two upcoming hospitals in Turkey – the 128-bed Acibadem Atasehir and
the 120-bed Acibadem Kartal. These greenfield projects were expected to require capex
of ~MYR375mn but are currently being evaluated. We assume that there will be no new
hospital investments for Acibadem in FY18~20F.
2) Refinancing USD250mn of debt due in 2018 – we understand that Acibadem has
been able to refinance the USD250mn of debt due in 2018 at a fixed rate of ~1.5% as
compared with 3% earlier. This has been done in the form of a subordinated debt backed
by Acibadem shareholders. We understand that Acibadem is planning to convert a
significant part of this debt into TRY to hedge it against their operations.
While we expect significant unrealised foreign exchange losses related to non-TRY
borrowings in 2Q18, we believe management’s proactive steps could stem further losses
in FY18 and could also benefit the company once the currency volatility reduces.
We expect Acibadem to return to profitability in FY20F
We expect revenue at Acibadem to grow by 8% y-y in FY18F, 10% y-y in FY19F and
FY20F. We see the weak TRY and stabilising geo-political situation resulting in an
increase in the number of medical travellers to Acibadem hospitals in Turkey and
Bulgaria for treatment. We note that most of these travellers are Europeans of Turkish
origin and expect them to account for ~10% of Acibadem’s inpatient revenues over this
time period. We also see revenue intensity rising, especially for hub hospitals like
Acibadem Altunizade due to more complex cases aided by the company’s investments in
technology such as robotic surgery and hybrid operating rooms. Overall, we see the
EBITDA for Acibadem being maintained at 16% during FY18~20F and we see a return to
net profitability from FY20F.
Fig. 63: Acibadem to return to profitability in FY20F
(MYRmn) Revenue (LHS) EBITDA margin (%) (LHS)

6,000 Profit margin (%) (LHS) 20%
5,000 15%
4,000 10%
3,000 5%
2,000 0%
1,000 -5%
0 -10%
FY12 FY13 FY14 FY15 FY16 FY17 FY18F FY19F FY20F
90
Fortis Healthcare – IHH in final four

On 1 June, Fortis Healthcare announced that it had started a new bidding process for the
company and invited four organisations – IHH Healthcare, Manipal Health, Munjal-
Burman group and Radiant Life Care. According to the bidding process, the four
organisations were given until 10 June to conduct their due diligence and will have to
submit their bids by 28 June. These bids would have to include: 1) a minimum
investment of INR15bn (~MYR887mn) in Fortis Healthcare by way of preferential
allotments; 2) a plan to fund the acquisition of RHT Health Trust by Fortis Healthcare;
and 3) a plan to provide an exit to private equity investors, who hold 31.52% in the
company’s SRL Diagnostics subsidiary.
Investment in Fortis would benefit IHH strategically and operationally
IHH currently operates eight hospitals in India with a capacity of 1,192 beds. These
hospitals are concentrated in the four major cities of South and West India – Mumbai,
Bangalore, Hyderabad and Chennai – and focus on high-revenue-intensity procedures
including transplants. On the other hand, while Fortis has a presence across India, it is
largely focused in the North of the country and especially in the National Capital Region
(NCR), where IHH currently has no operations. The potential acquisition of Fortis would
make IHH the second-largest private hospital operator with a pan-India presence and,
thus, we see the deal as beneficial from a strategic and operational point of view for IHH.
IHH’s previous offer of INR175/share could be revised downwards
On 1 May, IHH’s board had offered to invest INR40bn (~MYR2.4bn) through a
preferential issue of equity shares at a price of INR175/share, with most of this coming
after a one-week due diligence. This was slightly lower than Manipal Health’s revised
offer to invest at a price of INR180/share. Given the concerns about the deteriorating
financials of Fortis, coupled with the multiple investigations into its accounts from the
Securities and Exchange Board of India (SEBI) – the Indian stock market regulator – and
the Serious Fraud Investigation Office (SFIO), we continue to believe that a through due
diligence from IHH is required before it submits a bid for Fortis. Recent reports in the
Indian media suggest that the due diligence of Fortis Healthcare has revealed unpaid
vendor dues of INR4.5bn (~MYR266mn), an INR5.03bn (~MYR297mn) penalty on its
subsidiary Fortis Escorts Heart Institute and land-related issues at three of its hospitals in
Gurgaon, Malad and Vashi. Given these fresh concerns, we believe IHH’s previous offer
of INR175/share could be revised downwards.
IHH would expect to get at least 30~35% stake in Fortis if its bid is accepted
While the bidding process laid out by Fortis Healthcare only includes a minimum
investment of INR15bn, we believe that if IHH submits a bid, it would look to invest closer
to the INR40bn that it had proposed on 1 May. This would give IHH ~30% stake in the
company, resulting in a mandatory tender offer for an additional 26% of the company.
We expect this to be largely funded from internal sources with the company having cash
balances of MYR6.1bn (~INR90bn) at present. While we believe that management would
prefer to get over 50% of the equity of Fortis, we understand that a number of major
shareholders might not surrender their shares on the expectation of higher returns if
control of the company shifts to IHH. In such a scenario, IHH would become the largest
shareholder of the company and expects to have control of the operations of Fortis with
support from other major shareholders.
91
Upgrade to Buy; raise TP to MYR7.10

We like IHH Healthcare for its strong franchise and diversified healthcare operations in
its four home markets of Singapore, Malaysia, Turkey and India, and we upgrade to Buy
with a new target price of MYR7.0, implying an upside of 16.6%.
We see rising revenue intensity in all of its home markets, but especially in Singapore
and Turkey due to the company’s proactive investments in technologies such as robotic
surgery, hybrid operating rooms and telemedicine. We believe these investments will
help IHH’s hospitals differentiate themselves from peers and allow them to attract
medical travellers and facilitate more complex and revenue-intensive surgeries.
We believe the Gleneagles Hong Kong hospital is on its way to achieve break-even in
2018F, with EBITDA losses continuing to narrow since it started operations in 1Q17. We
see occupancy rising from 12-15% in 1Q18 to 25% for 2018F, due to the sharp growth in
medical travellers, especially from mainland China. We also see this driving the growth in
revenue intensity for the hospital.
We also see geopolitical concerns over Turkey abating and while the volatility of the TRY
has impacted Acibadem’s earnings, the underlying operations remain strong. We see the
weak TRY leading to an increase in the number of medical tourists coming to Turkey,
driving inpatient admissions and more complex surgeries.
While we reduce our estimates for FY18F to account for the recent depreciation of the
TRY, we raise our FY19F EBITDA estimate by 1.3% and our net profit estimate by 2.5%
to account for the growth in revenue intensity, as shown in Fig. 64.
Fig. 64: IHH: Change in estimates

2018F forecast 2019F forecast
Previous Current change (%) Previous Current change (%)
Revenue (MYRmn) 12,627 12,515 -0.9% 14,411 14,132 -1.9%
Staff costs (MYRmn) 5,133 5,088 -0.9% 5,931 5,780 -2.5%
— as a % of revenue (%) 40.7% 40.7% 0.0pp 41.2% 40.9% -0.3pp
EBIT (MYRmn) 1,557 1,531 -1.6% 2,000 2,038 1.9%
EBITDA (MYRmn) 2,580 2,554 -1.0% 3,067 3,106 1.3%
Net profit (MYRmn) 761 740 -2.8% 1,144 1,173 2.5%
Margins (%)
EBIT margin 12.3 12.2 (0.1) 13.9 14.4 0.5
EBITDA margin 20.4 20.4 (0.0) 21.3 22.0 0.7
Net profit margin 6.0 5.9 (0.1) 7.9 8.3 0.4
Source: Nomura estimates
New TP of MYR7.10 is based on sum-of-the-parts valuation

Given IHH’s diverse operations and investments in a number of companies, we use a
sum-of-the-parts valuation for the company. We divide its businesses into:
• Parkway Pantai: consists of IHH’s operations in Malaysia, Singapore and India. We
value this part of the business at FY19F EV/EBITDA of 18x, which is largely in line with
its regional peers.
• Acibadem: consists of Acibadem’s operations in Turkey and the adjoining areas. IHH
has a 60% stake in Acibadem, and we value the business at FY19F EV/EBITDA of 18x.
We see this as justified given the strong constant currency revenue growth, expanding
the margins and capacity expansion plans of Acibadem.
• IMU Health: complements the healthcare training business of Parkway Pantai and
provides a channel of skilled healthcare professionals to its healthcare facilities. We
value this business at FY19F EV/EBITDA of 14x, which is in line with its regional peers.
• Equity stake in P-Life REIT: As these companies are listed, we value the stakes in
these companies at their current market prices.
92
• Greater China operations: The company’s Greater China operations consist of stakes
in hospital projects in Hong Kong (60%), Shanghai (70%) and Chengdu (70%) and
Nanjing (60%).
Using a sum-of-the-parts valuation, we arrive at an equity valuation of MYR57.3bn for
IHH, resulting in a target price of MYR7.10, as shown in Fig. 65. This implies a target
FY19F EV/EBITDA of 18.7x and a target FY19F P/E of 49.9x.
Fig. 65: Sum-of-the-parts valuation for IHH Healthcare

Segment Valuation methodology IHH stake Important terms EV (MYRmn)
Parkway Pantai FY19F EV / EBITDA multiple 100% EBITDA multiple = 18x 36,973
Acibadem FY19F EV / EBITDA multiple 60% EBITDA multiple = 18x 7,911
IMU Health FY19F EV / EBITDA multiple 100% EBITDA multiple = 14x 1,159
P-Life REIT Market value 35.76% 1,797
HK - 60%, Chengdu -
Greater China operations DCF of EBITDA 70%, Shanghai - 70%, 10,204
Nanjing - 60%
Total 58,044
Net cash 236
Market Cap 58,280
Value per share 7.1
Upside 16.6%
Fig. 66: IHH – 1-year forward EV/EBITDA (x) Fig. 67: IHH – 1-year forward P/E band
Price (MYR)
30
10
25 9
8
20 7
6 75x
15 70x
5
65x
60x
10 55x
4 50x
45x
3 40x
5 35x
2
0 1
Jul-12 Jun-13 May-14 Apr-15 Mar-16 Jan-17 Dec-17
0
Jul-12 Jun-13 May-14 Apr-15 Mar-16 Jan-17 Dec-17
Source: Bloomberg, Nomura research Source: Bloomberg, Nomura research
93
As shown in Fig. 68, IHH trades at an FY19F EV/EBITDA of 16.2x, which is at a discount
to its regional peers due to its low ROE.
Fig. 68: Asian healthcare valuations

Company Ticker Price Rating PER(x) EV/EBITDA(x) PBV(x) ROE (%)
FY18F FY19F FY18F FY19F FY18F FY19F FY18F FY19F
Malaysia
IHH Healthcare IHH MK 6.09 BUY 67.8 42.8 20.2 16.2 2.0 2.0 3.0 4.7
KPJ Healthcare KPJ MK 1.06 Not Rated 27.9 25.9 13.2 12.2 2.6 2.4 10.1 10.5
Average 47.9 34.3 16.7 14.2 2.3 2.2 6.6 7.6
Thailand
Bangkok Chain BCH TB 16.00 BUY 37.8 32.7 18.9 17.0 6.9 6.2 19.1 19.8
Bangkok Dusit BDMS TB 25.25 BUY 39.8 35.8 23.1 20.8 5.8 5.3 15.1 15.5
Bumrungrad BH TB 192.50 BUY 31.7 28.5 20.7 18.8 7.4 6.5 25.1 24.3
Chularat Hospital CHG TB 2.38 BUY 39.9 35.4 24.4 22.0 6.4 5.7 17.1 16.9
Average 37.3 33.1 21.8 19.6 6.6 5.9 19.1 19.1
Singapore
Raffles Medical Group RFMD SP 1.06 NEUTRAL 31.7 32.9 22.4 23.6 2.4 2.3 7.7 7.1
India
Apollo Hospital APHS IN 999.40 BUY 32.8 27.1 15.5 13.2 3.3 3.0 11.7 11.7
Fortis Healthcare FORH IN 143.75 NEUTRAL 77.3 37.8 18.0 13.5 1.4 1.4 1.9 3.7
Average 55.0 32.5 16.8 13.3 2.4 2.2 6.8 7.7
China
Aier Eye Hospital 300015 CH 31.04 BUY 48.5 36.4 40.3 33.1 8.6 7.2 18.5 21.5
Phoenix Healthcare 1515 HK 9.99 Not Rated 20.9 15.9 14.5 12.6 2.1 2.0 7.2 7.8
Average 34.7 26.2 27.4 22.8 5.3 4.6 12.9 14.6
Indonesia
Siloam International Hospitals SILO IJ 4.45 BUY 57.3 45.3 10.3 8.2 1.6 1.5 2.3 3.4
Mitra Keluarga Karyasehat MIKA IJ 106.44 NEUTRAL 36.8 34.5 26.4 23.4 7.0 6.8 19.4 19.9
Average 47.1 39.9 18.4 15.8 4.3 4.1 10.9 11.7
Note: Prices as of 11 June 2018 close. For Indian stocks, FY18F indicates YE-Mar 2019 and FY19F indicates YE-Mar 2020
Source: Bloomberg consensus forecasts for not-rated stocks, Nomura estimates
Fig. 69: DCF valuation of MYR7.30

Fiscal Year Sales OP EBT Depreciation Capex Working FCF Discount Present Per Share
Capital Rate Value Value
FY (MYRmn) (MYRmn) (MYRmn) (MYRmn) (MYRmn) (MYRmn) (MYRmn) (MYRmn) (MYR)
2017 11,143 1,805 1,165 916 1,433 (122) 828 1.00 828 0.1
2018F 12,515 1,531 904 957 800 (61) 1,708 1.07 1,592 0.2
2019F 14,132 2,038 1,583 999 816 (73) 2,126 1.15 1,846 0.2
2020F 15,915 2,354 2,004 1,042 832 (105) 2,433 1.24 1,968 0.2
2021F 17,691 2,788 2,516 1,086 849 (128) 2,833 1.33 2,136 0.3
2022F 19,453 3,230 3,044 1,131 866 (79) 3,173 1.42 2,229 0.3
2023F 20,946 3,613 3,545 1,176 883 (112) 3,549 1.53 2,323 0.3
2024F 22,489 3,963 3,957 1,223 901 (67) 3,841 1.64 2,342 0.3
2025F 23,677 4,218 4,271 1,270 919 (116) 4,163 1.76 2,366 0.3
2026F 24,733 4,375 4,492 1,318 937 (50) 4,304 1.89 2,279 0.3
2027F 25,770 4,519 4,702 1,368 956 (125) 4,588 2.03 2,263 0.3
2028F 26,800 4,651 4,906 1,418 975 (52) 4,732 2.18 2,175 0.3
2029F 27,853 4,781 5,110 1,469 995 (129) 5,041 2.33 2,159 0.3
2030F 28,961 4,914 5,323 1,522 1,015 (61) 5,229 2.51 2,087 0.3
Terminal Value 28,961 4,914 5,323 1,522 1,015 (61) 80,457 2.51 32,107 3.9
FCF Present Value 59,870 7.3
(Adjustments)
+Short term investments 0 0.0
+Cash 6,030 0.7
+Other 0 0.0
=Enterprise Value 65,900 8.0
-Interest bearing debt 5,794 0.7
=Enterprise Value-Debt 60,106 7.30
(Assumptions)
Diluted Shares 8,239.6 Million Risk Free Rate 4.2%
Long term Tax rate 22% Risk Premium 5.3%
Terminal Growth Rate 0% Beta 0.8
Cost of Equity 8.4%
WACC 7.3%
94
DCF valuation of MYR7.30

We also use DCF as a valuation method for IHH and arrive at a value of MYR7.20 as
shown in Fig. 69. As IHH continues to expand in its four home markets and international
markets including China, we expect revenue to record a CAGR of 9% over FY17~27F,
followed by a CAGR of 4% in FY27~30F. Our DCF assumptions include a WACC of
7.3% and a terminal growth rate of 0% for a valuation of MYR7.30 per share, which
implies an upside of 19.9% from current levels.
Risks to our target price
Key downside risks to our target price include:
• Slower-than-expected ramp-up and break-even at the Gleneagles Hong Kong
Hospital
• Further depreciation of Turkish Lira vs. MYR
• Government risk: Changes in government regulations in IHH’s four home markets of
Singapore, Malaysia, Turkey and India could hurt the company’s operations.
• Execution risk: While IHH has demonstrated strong execution in the past, we believe
the company’s continued expansion in Malaysia, Turkey, India and Hong Kong
provides execution risks. A delay in the company’s projects could provide headwinds to
margin expansion.
• Drop in medical tourists to Singapore as SGD strengthens vs. local currencies:
Medical tourists make up ~30% of the patient load at IHH’s Singapore hospitals. As the
SGD continues to strengthen against regional currencies including the Indonesian
rupiah, we believe there is a risk that the number of medical tourists will decline as they
put off treatment.
95
Strong operating metrics back valuations

IHH’s valuations are backed by strong revenue growth and a strong balance sheet,
which should help the company continue to expand in its home markets and in other
international markets including China.
Revenue to record a CAGR of 13% over FY17-20F
Since its incorporation, IHH Healthcare has grown steadily through a mixture of
acquisitions and expansion through the building of new hospitals. As shown in Fig. 70,
revenue recorded a CAGR of 22% during FY11~17 as the company expanded in all four
of its home markets. We see continued revenue growth as IHH invests in new hospitals
in markets including China and upgrades its current hospital portfolio. Overall, we see
revenue rising 12% y-y in FY18F, 13% y-y in FY19F and 13% y-y in FY20F.
Fig. 70: IHH Healthcare: Revenue to record a CAGR of 13% over FY17-20F
(MYRmn) Parkway Pantai Acibadem IMU Health Plife REIT and others
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18F FY19F FY20F
While Singapore remains the largest market for IHH, its share has steadily declined from
58% in FY11 to 35% in FY17. This is largely due to the incorporation of: (1) Acibadem,
which accounts for all of its sales in the Central and Easter Europe, Middle East and
North Africa (CEEMENA) region and has seen its share rise from 30% in FY12 to 36% in
FY14, and (2) India and China which have seen their share rise to 9% in FY17.
Fig. 71: IHH Healthcare: Revenue by geography

Singapore Malaysia CEEMENA Other regions
100% 330 363
213 421 819 1,367 1,604
80% 2,059
1,200 2,586 2,652
2,953
3,480 3,854
60%
1,219
1,362 1,529 1,444

1,621 1,836
40%
1,916
3,355
20% 2,445 2,742 3,240 3,554 3,848
0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: Company data, Nomura research
96
Operating leverage with flexibility in staff costs

With its fixed cost base at ~40% of revenue and given its margin profile, any change in
the company’s revenue or costs could have a significant leverage impact on IHH
Healthcare’s net profit. A case in point, as staff costs increased from 32% of revenue in
FY11 to 41% of revenue in FY17, net profit margin declined from 11% to 7%. Potential
margin improvement through operating leverage is especially significant for the group as
its revenue growth comes from increasing capacity across the globe.
Fig. 72: Breakdown of operating expenses (FY17) Fig. 73: Staff costs as a % of revenue to stabilise at 41%
50%
45%
Other
expenses
16% Consumables 40%
21%
Depreciation
9% Purchased 35%
and
contracted
services 30%
9%
25%
Staff costs 20%

45%
FY10
FY15
FY11
FY12
FY13
FY14
FY16
FY17
FY18F
FY19F
FY20F
Staff costs to stabilise at 41% by FY20F

In FY17, staff costs accounted for ~45% of IHH Healthcare’s operating expenses,
followed by inventories and consumables at 21% and purchased and contracted services
at 9%. Staff costs as a share of revenue rose from 32% in FY11 and FY12 to 41% in
FY17 due to the company’s expansion in Hong Kong and in Turkey. We expect staff
costs to remain at ~41% as revenue growth is balanced by: 1) the increase in salaries
driven by the higher demand for healthcare professionals; and 2) additional staff
requirements in anticipation of the new hospitals and the hospital expansions in China.
Fig. 74: IHH Healthcare: Dividend yield to rise through FY20F

(MYR) Dividend (MYR/share) (LHS) Yield (%) (RHS)
0.060 1.0%
0.050
0.8%
0.040
0.6%
0.030
0.4%
0.020
0.2%
0.010
0.000 0.0%
FY13 FY14 FY15 FY16 FY17 FY18F FY19F FY20F
Dividend yield to rise through FY20F

In FY13, IHH Healthcare instituted a dividend policy of paying no less than 20% of the
group’s profit after tax and minority interests (PATMI) excluding exceptional items. The
company’s first dividend was MYR0.02 per share in FY13 for a pay-out ratio of 26%. This
was raised to MYR0.03 per share in FY14 for a pay-out ratio of 33% and has remained
97
constant through FY17. Given IHH’s strong operating cashflows and cash balances, we
expect the company to continue to maintain its pay-out ratio of ~30% and pay dividends
per share of MYR0.035 in FY18F, MYR0.040 in FY18F and MYR0.050 in FY18F. We
see the company’s dividend yield rising from 0.5% in FY17 to 0.8% by FY20F.
Strong balance sheet should aid capacity expansion
IHH Healthcare has a strong balance sheet and despite its aggressive capacity
expansion in its three home markets, it has a net debt to equity of only 11% in 1Q15. We
believe this is largely due to its large equity base and strong operating cashflows.
Despite a total capex estimate of ~MYR3bn over FY15~17F, we see the company
continuing to reduce its net debt to equity to 4% by FY17F as shown in the exhibit below.
We believe this sets the company up well to continue to expand capacity by building new
hospitals and upgrading its existing hospitals.
Fig. 75: We expect the company to be net cash from FY18F

(MYRmn) OCF (LHS) FCF (LHS)
3,500 Net debt to equity (RHS) 3,265 25%
2,942
3,000 20%
2,508 2,433
2,500 2,261 15%
2,126
1,986 1,934
2,000 1,631 1,708 10%
1,500 1,318 1,338 5%
1,000 722 828 0%

618 624
444
500 -5%
(150)
0 -10%
(500) -15%
64% of the company’s debt is in USD, EUR and JPY

IHH Healthcare’s total debt stood at ~MYR5.2bn in 2Q15. Most of this debt is in global
currencies such as US dollar (USD) – 10%, Japanese yen (JPY) – 21% and EUR – 33%,
with the Singapore dollar accounting for 26%, while only 1% is in Malaysian ringgit
(MYR). We believe continued declines in the MYR vs. the USD and SGD could
adversely impact the company’s debt profile. Note: YTD-15, the MYR has declined 17%
vs. the USD, 10% vs. the EUR and 16% vs. the JPY.
Fig. 76: IHH Healthcare: Debt profile

1Q18: MYR6.9bn
Others
USD 6%
7% EUR
32%
HKD
16%
SGD
JPY
18%
21%
98
Negative cash cycle boosts OCF and FCF

Since its inception, IHH Healthcare has consistently run a negative cash cycle, which
has helped to boost the company’s OCF and FCF. We believe that the company has
been able to maintain a 90-day credit policy with its suppliers while managing its
receivables effectively, as shown in the exhibit below. Economies of scale have helped it
to keep inventories tight by bulk purchasing for the entire organisation. Overall, we
expect the company to maintain its negative cash cycle through FY20F.
Fig. 77: IHH Healthcare: Cash cycle

(days) Days payable Days receivable
125 Days inventory Cash conversion cycle
100
75
50
25
(25)
(50)
(75)
99
Bangkok Dusit Medical Services
BDMS.BK BDMS TB
Rising intensity supports revenue growth Global Markets Research

14 June 2018
Long-term growth strengthened by both patient
Rating
volume growth and revenue intensity Remains Buy
Reiterate Buy Target Price
Remains THB 31.00
We reiterate Buy on BDMS as we see it as one of the Asian hospitals with a
strengthening growth outlook given its continuous investment in advanced Closing price
11 June 2018 THB 25.25
healthcare technology. BDMS also has a 20.5% stake in Bumrungrad Hospital
(BH TB, Buy), which is also at the leading edge of medical technology in Asia. Potential upside +22.8%
Increasing number of Centers of Excellence
BDMS currently has 10 Centers of Excellence (CoEs), located in several Anchor themes
major provinces across Thailand, plus one located in Cambodia. We note that As disease profile shifts towards
the CoEs mostly generate higher revenue and EBITDA margins than normal an increase in chronic conditions
hospitals, due to higher intensity of service and exposure to international amid an ageing population, we
patients. For example, its state-of-the-art Bangkok Hospital Headquarter see an increase in the role of
(BHQ) accounted for 17% of revenue and 19% of EBITDA in 1Q18. technology in the next phase of
Management has recently added Bangkok Rayong Hospital as its 10th CoE. the evolution of hospitals.
Resilient increase in average bill
Nomura vs consensus
We note that rising revenue intensity, led by its advanced medical technology,
Our FY18-19F EPS estimates are
has contributed to the growth in average patient bill and total hospital revenue
2-3% above consensus.
growth (Fig. 78-Fig. 79). The intensity growth also helps support resilience in
revenue growth in years with seasonally soft patient volume, e.g. in 2017, Research analysts
while it will strengthen revenue growth in normal years.
Growing insurance exposure supporting resilience in high-intensity care Thailand Healthcare &
Pharmaceuticals
Insurance patient revenue has been a major driver for BDMS’ revenue growth.
Its revenue contribution has risen from 16% in 2011 to 26% in 2017. We Thanatcha Jurukul - CNS, Thailand
thanatcha.jurukul.1@nomura.com
believe higher exposure to insurance patient revenue should help maintain +662 287 6799
frequency of visits to BDMS for patients in need of high-intensity care amid
growing healthcare costs.
Valuations are attractive
BDMS is trading at 38x average FY18-19F P/E (normalised), below the 3-year
average of 39x. Our DCF-based TP of THB31 implies 23% potential upside.
Currency (THB) Actual Old New Old New Old New
Revenue (mn) 71,933 80,410 80,407 88,091 87,872 96,204 96,252

Reported net profit (mn) 10,216 9,967 9,965 11,285 11,217 12,733 12,745
Normalised net profit (mn) 8,021 9,967 9,965 11,285 11,217 12,733 12,745
FD norm. EPS growth (%) -1.9 22.7 22.7 11.8 11.1 12.8 13.6
ROE (%) 17.2 15.1 15.1 15.6 15.5 16.1 16.1
Net debt/equity (%) 54.2 46.6 46.6 39.9 40.0 35.2 35.2
Nomura | Bangkok Dusit Medical Services 14 June 2018
Key data on Bangkok Dusit Medical Services

Relative performance chart Cashflow statement (THBmn)
EBITDA 13,867 14,637 17,107 18,878 20,915
Change in working capital 852 -1,031 -1,248 176 -4,006
Other operating cashflow -2,273 -2,673 -5,158 -4,407 -3,890
Cashflow from operations 12,447 10,933 10,702 14,648 13,020
Capital expenditure -6,861 -19,247 -5,699 -8,007 -6,822
Free cashflow 5,586 -8,314 5,003 6,640 6,198
Reduction in investments -1,579 760 -3,111 -1,291 -1,385
Net acquisitions -22 -1 -30 -30 -30
Dec in other LT assets -1,145 1,345 -59 -61 -65
Inc in other LT liabilities -1,311 780 1,151 319 909
Adjustments 1,425 4,493 1,960 972 475
CF after investing acts 2,954 -936 4,914 6,549 6,103
Source: Thomson Reuters, Nomura research Cash dividends -5,575 -4,492 -3,563 -5,046 -5,608
Equity issue
Notes: Debt issue 1,950 7,506 1,579 -4,439 -1,126
Convertible debt issue
Others -641 -1,203 524 575 637
CF from financial acts -4,266 1,811 -1,459 -8,910 -6,097
Performance Net cashflow -1,312 874 3,455 -2,362 6
(%) 1M 3M 12M Beginning cash 5,529 4,217 5,091 8,546 6,184
Absolute (THB) 7.4 9.3 31.5 M cap (USDmn) 12,234.6 Ending cash 4,217 5,091 8,546 6,184 6,191
Absolute (USD) 7.2 6.9 39.8 Free float (%) 47.1 Ending net debt 27,530 34,162 32,286 30,208 29,076
Rel to MSCI Thailand 10.7 13.8 15.8 3-mth ADT (USDmn) 29.3
Balance sheet (THBmn)
Income statement (THBmn) As at 31 Dec FY16 FY17 FY18F FY19F FY20F
Year-end 31 Dec FY16 FY17 FY18F FY19F FY20F Cash & equivalents 4,217 5,091 8,546 6,184 6,191
Revenue 67,985 71,933 80,407 87,872 96,252 Marketable securities 548 572 572 572 572
Cost of goods sold -45,277 -47,975 -53,184 -58,031 -63,428 Accounts receivable 6,257 6,940 7,830 8,324 9,392
Gross profit 22,708 23,957 27,223 29,841 32,824 Inventories 1,516 1,735 1,869 2,064 2,234
SG&A -13,644 -14,488 -15,630 -16,868 -18,194 Other current assets 57 21 24 26 28
Employee share expense Total current assets 12,595 14,359 18,840 17,170 18,417
Operating profit 9,064 9,469 11,593 12,973 14,630 LT investments 17,237 16,453 19,564 20,855 22,240
EBITDA 13,867 14,637 17,107 18,878 20,915 Fixed assets 56,470 71,867 72,515 74,978 75,909
Depreciation -4,803 -5,168 -5,514 -5,905 -6,285 Goodwill 16,932 17,539 18,412 19,640 20,685
Amortisation Other intangible assets 1,188 1,237 1,237 1,237 1,237
EBIT 9,064 9,469 11,593 12,973 14,630 Other LT assets 2,516 1,171 1,230 1,291 1,356
Net interest expense -881 -1,535 -1,280 -1,280 -1,180 Total assets 106,939 122,627 131,798 135,171 139,845
Associates & JCEs 1,370 1,417 1,402 1,543 1,667 Short-term debt 5,831 1,536 11,889 3,321 6,443
Other income 932 907 1,074 1,168 1,275 Accounts payable 4,400 4,750 5,393 5,674 6,423
Earnings before tax 10,486 10,258 12,789 14,405 16,391 Other current liabilities 7,647 7,132 6,266 6,853 3,341
Income tax -1,922 -1,879 -2,420 -2,733 -3,129 Total current liabilities 17,877 13,417 23,548 15,848 16,206
Net profit after tax 8,563 8,380 10,370 11,672 13,263 Long-term debt 16,042 28,943 28,943 33,072 28,823
Minority interests -385 -359 -404 -455 -517 Convertible debt 9,874 8,774 0 0 0
Other items Other LT liabilities 4,841 5,621 6,772 7,091 8,001
Preferred dividends Total liabilities 48,635 56,756 59,263 56,011 53,031
Normalised NPAT 8,178 8,021 9,965 11,217 12,745 Minority interest 2,586 2,800 3,204 3,660 4,177
Extraordinary items 209 2,195 Preferred stock
Reported NPAT 8,387 10,216 9,965 11,217 12,745 Common stock 22,031 22,122 22,071 22,071 22,071
Dividends -5,575 -4,955 -3,655 -5,046 -5,608 Retained earnings 29,069 34,315 40,624 46,795 53,932
Transfer to reserves 2,812 5,261 6,310 6,170 7,137 Proposed dividends
Valuations and ratios Other equity and reserves 4,619 6,635 6,635 6,635 6,635
Reported P/E (x) 46.6 38.3 39.8 35.8 31.5 Total shareholders' equity 55,719 63,071 69,330 75,500 82,637
Normalised P/E (x) 47.8 48.8 39.8 35.8 31.5 Total equity & liabilities 106,939 122,627 131,798 135,171 139,845
Price/book (x) 7.0 6.2 5.8 5.3 4.9 Interest cover 10.3 6.2 9.1 10.1 12.4
EV/EBIT (x) 40.4 39.4 32.9 29.3 26.1 Net debt/EBITDA (x) 1.99 2.33 1.89 1.60 1.39
Gross margin (%) 33.4 33.3 33.9 34.0 34.1 Net debt/equity (%) 49.4 54.2 46.6 40.0 35.2
EBITDA margin (%) 20.4 20.3 21.3 21.5 21.7
Net margin (%) 12.3 14.2 12.4 12.8 13.2 Reported EPS (THB) 54.14c 65.95c 63.51c 70.58c 80.20c
Effective tax rate (%) 18.3 18.3 18.9 19.0 19.1 Norm EPS (THB) 52.79c 51.78c 63.51c 70.58c 80.20c
Dividend payout (%) 66.5 48.5 36.7 45.0 44.0 FD norm EPS (THB) 52.79c 51.78c 63.51c 70.58c 80.20c
ROE (%) 15.5 17.2 15.1 15.5 16.1 BVPS (THB) 3.60 4.07 4.36 4.75 5.20
ROA (pretax %) 10.5 9.9 10.8 11.5 12.4 DPS (THB) 0.19 0.23 0.32 0.35 0.40
EBITDA 4.4 5.6 16.9 10.4 10.8 Days inventory 11.3 12.4 12.4 12.4 12.4
Normalised EPS 5.5 -1.9 22.7 11.1 13.6 Days payable 37.6 34.8 34.8 34.8 34.9
Normalised FDEPS 5.5 -1.9 22.7 11.1 13.6 Cash cycle 7.9 11.0 11.1 11.1 11.2
101
Fig. 78: Increasing intensity supports growing IPD bills Fig. 79: Increasing intensity supports growing OPD bills
Revenue per patient day (THB) Revenue per OPD visit
Revenue per patient day (LHS) Revenue per OPD visit (LHS)
26,500 y-y (RHS) 14% 3,300 y-y (RHS) 14%
y-y (IPD revenue growth) (RHS) y-y (OPD revenue growth) (RHS)
26,000 12%
3,200 12%
25,500 10%
3,100
25,000 8% 10%
24,500 6% 3,000
8%
24,000 4% 2,900
23,500 2% 6%
2,800
23,000 0% 4%
2,700
22,500 -2%
2,600 2%
22,000 -4%
21,500 -6% 2,500 0%
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Fig. 80: Insurance revenue has been growing strongly Fig. 81: Increasing exposure to insurance
BDMS: Revenue from insurance patients (THB mn) BDMS: Revenue contribution
20,000 Selfpay Insurance Contract Social security Others

100%
18,000
90% 7% 7% 7% 7% 8% 9% 9%
16,000 20% CAGR
80% 16% 16% 17%
14,000 20% 22%
70% 24% 26%
12,000
60%
10,000
50%
8,000 40%
71% 70% 69% 66%
6,000 30% 63% 61% 58%
4,000 20%
2,000 10%
0 0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 2011 2012 2013 2014 2015 2016 2017
Source: Company data, Nomura estimates Source: Company data, Nomura research
102
Fig. 82: 10 Centers of Excellences nationwide + one in Cambodia
Source: Company data
Fig. 83: BDMS: 3-year forward P/E band Fig. 84: BDMS: 3-year forward EV/EBITDA band
P/E (x) EV/EBITDA (x)

50
27
+2Stdev 47.2x
+2Stdev 25.3x
45 25
+Stdev 42.9x +Stdev 23.5x
23
40
Mean 38.7x Mean 21.7x
21
35 -Stdev 20.0x
-Stdev 34.4x
19
-2Stdev 18.2x
30 -2Stdev 30.2x
17
25 15
Jun 15
Dec 16
Dec 17
Dec 15
Jun 16
Jun 17
Jun 18
Sep 15
Sep 16
Sep 17
Mar 16
Mar 17
Mar 18
Jun-17
Jun-15
Jun-16
Jun-18
Sep-15
Dec-15
Sep-16
Dec-16
Sep-17
Dec-17
Mar-16
Mar-17
Mar-18
Source: Bloomberg, Nomura estimates Source: Bloomberg, Nomura estimates
103
Raffles Medical RAFG.SI RFMD SP
Cost pressure to ramp up in 2H18 Global Markets Research

14 June 2018
As high-revenue-intensity cases shift to IHH, we see
Rating
cost pressure ahead of China expansion Remains Neutral
Target Price
Action: Slower growth in revenue intensity during FY17~20F Reduced from 1.25 SGD 1.20
With the Singaporean economy remaining weak, we see Raffles Medical
Closing price
facing headwinds from both the ends of the spectrum as more price conscious 11 June 2018 SGD 1.06
domestic patients shift to public facilities while the affluent and medical tourists
requiring more revenue-intensive surgeries prefer premium hospitals such as Potential upside +13.2%
IHH’s Mount Elizabeth Novena hospital, which has benefited from its proactive
investments in technology. We see this resulting in a slower growth in revenue Anchor themes
intensity during FY17~20F with the hospital segment revenue recording a As the disease profile shifts
CAGR of 5.6% despite a 25% increase in bed count. In 2H18F, we expect towards a rise in chronic
cost pressure to rise ahead of the likely opening of the Chongqing hospital in conditions amid an ageing
end-FY18F. While we continue to like Raffles Medical for its core business in population, we see a rise in the
Singapore and see its recent expansion into China as a long-term positive, we role of technology in the next
remain concerned about the shift of high-revenue-intensity operations to IHH phase of the evolution of
hospitals and the weakening growth from local patients and maintain Neutral. hospitals.
Catalysts: Further expansion in China; stake sale in Chongqing hospital Nomura vs consensus
Larger-than-expected start-up losses at the China hospitals would be a Our FY18F profit estimate is 9%
negative while a stake sale in the Chongqing hospital would be a positive. below consensus as we expect
Valuation: Reduce target price to SGD1.20, implying 13.2% upside limited impact on the profitability
from the Raffles Hospital
We largely maintain our FY18F revenue estimate, but reduce our FY19F
extension coming on line in
estimate by 2.9% due to the lower growth in revenue intensity. As cost
FY18F.
pressure ramps up due to the company’s expansion into China, we reduce our
FY18F and FY19F net profit estimates by 4.8% and 10%, respectively. We Research analysts
use sum-of-the-parts analysis to value the company: 1) we value the core
business at FY19F EV/EBITDA of 18x; and 2) China hospitals are valued Healthcare/Pharmaceutical
using DCF. Our new TP of SGD1.20 implies 13.2% upside, for a target FY18F
Raghavendra Divekar, CFA - NSC
P/E of 36x. The company trades at 32x FY18F P/E (EPS: 0.03), 5% below its raghavendra.divekar@nomura.com
historical average of 34x. We prefer IHH Healthcare (IHH MK, Buy). +81 3 6703 1229

Currency (SGD) Actual Old New Old New Old New
Revenue (mn) 478 501 501 572 556 641 620

Reported net profit (mn) 71 62 59 64 57 63 56
Normalised net profit (mn) 71 62 59 64 57 63 56
FD norm. EPS growth (%) 0.6 -12.2 -16.4 2.1 -3.5 -0.8 -1.9
ROE (%) 9.9 8.0 7.7 7.9 7.1 7.3 6.6
Net debt/equity (%) net cash 16.2 9.7 24.3 17.8 15.7 15.7
Nomura | Raffles Medical 14 June 2018
Key data on Raffles Medical

Relative performance chart Cashflow statement (SGDmn)
EBITDA 97 95 88 86 86
Change in working capital -1 -4 4 39 10
Other operating cashflow -17 -8 -12 -44 -14
Cashflow from operations 79 83 80 81 82
Capital expenditure -14 -10 -15 -15 -16
Free cashflow 64 73 65 66 67
Reduction in investments -28 -14 -150 -130 -50
Net acquisitions
Dec in other LT assets 0 -5 0 0 0
Inc in other LT liabilities 1 11 0 0 0
Adjustments -4 -122 1 1 1
CF after investing acts 34 -58 -84 -63 18
Source: Thomson Reuters, Nomura research Cash dividends -14 -14 -19 -19 -19
Equity issue 7 5 6 6 7
Notes: Debt issue -2 49 150 50 -50
Convertible debt issue
Others 1 4 4 4 4
CF from financial acts -8 45 141 42 -58
Performance Net cashflow 26 -13 57 -22 -40
(%) 1M 3M 12M Beginning cash 86 112 98 155 133
Absolute (SGD) -5.4 -8.6 -22.6 M cap (USDmn) 1,408.0 Ending cash 112 99 155 133 93
Absolute (USD) -5.4 -9.8 -19.7 Free float (%) 48.0 Ending net debt -73 -17 76 148 138
Rel to MSCI Singapore -0.7 -7.0 -30.9 3-mth ADT (USDmn) 1.9
Balance sheet (SGDmn)
Income statement (SGDmn) As at 31 Dec FY16 FY17 FY18F FY19F FY20F
Year-end 31 Dec FY16 FY17 FY18F FY19F FY20F Cash & equivalents 112 98 155 133 93
Revenue 474 478 501 556 620 Marketable securities
Cost of goods sold -392 -397 -431 -488 -552 Accounts receivable 101 87 99 110 122
Gross profit 82 80 70 68 67 Inventories 10 10 11 12 14
SG&A Other current assets
Employee share expense Total current assets 223 195 264 255 229
Operating profit 82 80 70 68 67 LT investments 371 385 535 665 715
EBITDA 97 95 88 86 86 Fixed assets 270 384 381 378 375
Depreciation -15 -15 -18 -18 -19 Goodwill
Amortisation Other intangible assets 31 37 37 37 37
EBIT 82 80 70 68 67 Other LT assets 5 4 4 4 4
Net interest expense 1 1 0 0 0 Total assets 901 1,006 1,222 1,340 1,360
Associates & JCEs Short-term debt 13 41 141 141 91
Other income Accounts payable 145 126 143 162 183
Earnings before tax 83 81 70 68 67 Other current liabilities 26 27 29 32 35
Income tax -15 -12 -13 -12 -12 Total current liabilities 184 194 313 335 309
Net profit after tax 68 69 58 56 55 Long-term debt 25 40 90 140 140
Minority interests 2 2 2 2 1 Convertible debt
Other items Other LT liabilities 9 20 20 20 20
Preferred dividends Total liabilities 219 254 423 495 469
Normalised NPAT 70 71 59 57 56 Minority interest 15 18 16 14 13
Extraordinary items Preferred stock
Reported NPAT 70 71 59 57 56 Common stock 314 340 367 394 422
Dividends -35 -40 -40 -40 -40 Retained earnings
Transfer to reserves 35 31 19 17 16 Proposed dividends
Valuations and ratios Other equity and reserves 352 394 416 437 456
Reported P/E (x) 26.4 26.5 31.7 32.9 33.6 Total shareholders' equity 666 734 783 831 878
Normalised P/E (x) 26.4 26.5 31.7 32.9 33.6 Total equity & liabilities 901 1,006 1,222 1,340 1,360
Price/book (x) 2.8 2.6 2.4 2.3 2.2 Interest cover na na na 2,847.2 2,819.8
EV/EBIT (x) 22.2 23.4 28.2 30.0 30.1 Net debt/EBITDA (x) net cash net cash 0.87 1.71 1.60
Gross margin (%) 17.3 16.8 14.0 12.3 10.9 Net debt/equity (%) net cash net cash 9.7 17.8 15.7
EBITDA margin (%) 20.4 19.9 17.5 15.6 13.9
Net margin (%) 14.8 14.8 11.9 10.3 9.1 Reported EPS (SGD) 4.02c 4.00c 3.34c 3.23c 3.15c
Effective tax rate (%) 18.1 15.0 18.0 18.0 18.0 Norm EPS (SGD) 4.02c 4.00c 3.34c 3.23c 3.15c
Dividend payout (%) 50.1 56.3 67.4 69.8 71.4 FD norm EPS (SGD) 3.96c 3.99c 3.33c 3.22c 3.15c
ROE (%) 10.8 9.9 7.7 7.1 6.6 BVPS (SGD) 0.38 0.41 0.44 0.47 0.49
ROA (pretax %) 10.8 9.4 7.1 6.0 5.5 DPS (SGD) 0.02 0.02 0.02 0.02 0.02
EBITDA 3.4 -1.6 -7.7 -1.5 -0.1 Days inventory 9.1 9.2 8.8 8.5 8.6
Normalised EPS 0.0 -0.4 -16.4 -3.5 -2.2 Days payable 122.6 124.5 114.1 114.0 114.2
Normalised FDEPS 0.0 0.6 -16.4 -3.5 -1.9 Cash cycle -45.5 -43.2 -37.4 -36.9 -37.1
105
Cyberdyne 7779.T 7779 JP
EQUITY: JAPAN PHARMACEUTICALS
Pioneer in medical robots Global Markets Research

14 June 2018
HAL treatments have made inroads in Japan, US,
Rating
and Europe Remains Buy
Pioneer in medical robots, HAL treatment makes inroads in Japan, US, and Target price
Europe Remains JPY 3,300
In Japan and Germany, HAL for Medical Use has been steadily building up a track Closing price
record for treatment under insurance, as a device to assist in the recovery of motor 11 June 2018 JPY 1,348
function in treatment of neurological diseases and spinal injuries. In December 2017
HAL received marketing approval in the US for the indication of spinal cord injury. In Potential upside +144.8%
Japan the company is making progress both in physician-led clinical trials on stroke
patients and in its efforts to expand indications for HAL for Medical Use.
Diverse lineup of other cybernics technology-based equipment besides HAL Anchor themes
for Medical Use Robots for medical treatment and
Besides HAL for Medical Use, the company has also introduced a diverse lineup welfare fields are set to become a
of other equipment based on cybernics technology, which is being adopted in new industry dovetailing with the
onsite care settings. In the long-term care field, the HAL lumbar-support-type needs of an advanced elderly
lineup consists of HAL for Care Support (796 units as of end-March 2018), and society. Having qualified for
HAL for Living Support (lower-limb type) (392 units), which is used in rehabilitation insurance coverage, HAL is being
hospitals. For general industry applications 372 units of lumber-type HAL for Labor used in Europe to improve motor
Support have been introduced for use on construction sites and in warehouses function and in regenerative
and financial institutions. There has been talk of promoting independence support therapies. In Japan, it is
for people only needing a modest level of care in the MHLW's FY18 revisions to increasingly being used for
long-term care reimbursements, and as the new version of HAL for Living Support welfare applications and is
is developed we think demand in this area could increase. leading the way in creating a new
Focus point for healthcare x ICT: Cyberdyne at forefront of moves to create industry.
Society 5.0 harnessing its own technology and those of other companies
Cyberdyne's cleaning and transport robots, which have autonomous movement Catalyst
and learning functions using the company's AI-based technology, have already As potential catalysts, we see (1)
been adopted at Haneda Airport, for example, but management is making an expanding number of
progress introducing more advanced features. We think that cleaning and
hospitals in Europe introducing
transportation robots will fulfill a role of lessening the burden on the elderly and
HAL and a mounting track record
improve their quality of life as set out in the advanced aged society envisioned
under the Society 5.0 program. Cyberdyne has been moving toward an urban in treatment supporting motor
planning model in which it is possible to prolong the healthy life of the elderly and function improvement, (2) an
stop the risk of falls through coexistence with robots, and to that end has been increase in the number of
actively incorporating not only its own in-house-developed products but also the facilities in Japan adopting HAL
technologies and development seeds of other companies (the company is looking for welfare applications, and (3)
beyond Society 5.0 and has its sights set on 5.1). Specifically, by investing in approval as medical equipment in
super computer and drone development companies and by setting up JVs with Japan and the US and
telecom device businesses, the company plans to move toward an urban planning developments with insurance
model that collects, analyzes, and provides feedback on human and robot activity coverage.
data in the broader context of technology, mobility, and Society 5.0.
Cons Research analysts
Currency: JPY 18/3 19/3E 20/3E 21/3E
Sales (mn) 1,727 4,520 7,320 10,880 Japan pharmaceuticals & healthcare
Rec profits (mn) -689 -80 1,400 3,430 Kyoichiro Shigemura - NSC
EPS -2.7 -0.2 4.2 10.3 kyoichiro.shigemura@nomura.com
+81 3 6703 1118
P/E (x) N/A N/A 322.1 131.2
EV/EBITDA (x) N/A 898.6 151.0 70.3
P/B (x) 6.4 6.3 6.2 5.9
Dividend yield (%) 0.0 0.0 0.0 0.0
Key company data: See next page for company data, and detailed price/index chart.
Nomura | Cyberdyne 14 June 2018
Key data on Cyberdyne

Rating Valuation and ratio analysis
Stock Buy (JPY) 18/3 19/3E 20/3E 21/3E
EPS -2.7 -0.2 4.2 10.3
BPS or NAV per share 212.0 212.4 216.6 226.9
Relative performance chart
DPS 0.0 0.0 0.0 0.0
ROE (%) -1.3 -0.1 2.0 4.6
Income statement
(JPYmn) 18/3 19/3E 20/3E 21/3E
Sales 1,727 4,520 7,320 10,880
Operating profits -1,018 -540 940 2,970
EBITDA -622 310 1,840 3,930
Interest & dividend income 12 10 10 10
Interest expense 1 0 0 0
Recurring profits -689 -80 1,400 3,430
Pretax profits -589 -80 1,400 3,430
Minority interest -3 - - -
Profits attributable to
-591 -50 900 2,210
owners of the parent
(Equity in net income of
-42 - - -
affiliates)
Source: ThomsonReuters, Nomura research
Balance sheet
Performance
(JPYmn) 18/3 19/3E 20/3E 21/3E
(%) 1M 3M 12M Current assets 31,806 32,936 34,636 37,531
Absolute -3.6 -12.2 -9.3
Operating receivables 363 700 1,100 1,600
Relative to Russell/Nomura
-3.2 -16.0 -20.5 Inventories 565 800 1,400 2,000
Large Cap
Long-term assets 14,533 15,200 16,000 16,900
Total assets 46,339 48,136 50,636 54,431
Operating payables
53 300 400 400
Stock price data (Current)
Current stock price (JPY) 1,348 Interest-bearing debt 0 0 0 0
Total liabilities 709 2,456 4,056 5,641
Market capitalization (JPY bn) 185.1
Net assets 45,630 45,680 46,580 48,790
52-week low stock price (JPY) 1,307 Shareholders’ equity 45,559 45,680 46,580 48,790
52-week high stock price (JPY) 2,150
Shares out (mn) 137.3
Cash flow statement
(JPYmn) 18/3 19/3E 20/3E 21/3E
Operating cash flow -53 1,925 2,350 3,520
-591 -50 900 2,210
owners of parent
Depreciation 396 850 900 960
Change in working capital -122 -325 -900 -1,100
Investment cash flow -2,483 -1,517 -1,700 -1,774
Capex -1,070 -1,350 -1,500 -1,650
Free cash flow -2,536 408 650 1,746
Financial cash flow -23 100 0 0
Change in interest-bearing
0 0 0 0
debt
Dividend payment 0 0 0 0
Change in cash &
-2,555 508 650 1,746
equivalents
107
Nomura | Cyberdyne 14 June 2018
Valuation methodology
We derive our target price of ¥3,300 using a DCF model with a forecast period through to
38/3 that assumes WACC of 8.1% and terminal growth of 0%.
Risks to our view
Risk factors that could result in the share price significantly underperforming our target
price include delays in the introduction of HAL, slow progress in the use of the equipment
in medical institutions owing to delays in insurance eligibility, and weak uptake of HAL by
institutions owing to changes in the budgets of medical institutions and long-term care
facilities. In addition, a move into the black at the recurring level could be delayed if
subsidies and grants for contract work are reduced owing to a lack of progress in
securing sufficient development and sales staff.
108
Ship Healthcare Holdings
3360.T 3360 JP
Supports creation of advanced healthcare systems Global Markets Research

14 June 2018
Central Uni has introduced built-to-order operating
Rating
rooms Remains Buy
Supporting creation of advanced healthcare systems on both hardware and Target price
Remains JPY 4,900
software fronts via hospital remodeling
Ship Healthcare Holdings supports the creation of cutting-edge hospitals Closing price
11 June 2018 JPY 4,220
primarily via project management for remodeling of acute care and high-level
acute care hospitals and supply, processing, and distribution (SPD) of medical Potential upside +16.1%
equipment and materials both inside and outside hospitals, for example, when
installing operating rooms or large-scale medical equipment. It also operates
dispensing pharmacies and long-term care facilities to provide ongoing care for Anchor themes
seniors and patients after they leave hospital. The company is also involved in The Japanese government is
the SCOT project discussed earlier in this report, which is working to create a working to rein in social security
model operating room with advanced networking and robotics. spending but at the same time
Focus point for healthcare x ICT: subsidiary Central Uni is active improve acute care, elderly-only
Subsidiary Central Uni began by supplying medical gas systems to medical housing, and homebased long-
institutions and has introduced built-to-order operating rooms that give hospitals term care services. We anticipate
increased business opportunities
free rein in design in terms of ease of use for physicians and collaboration with
for companies able to support the
external staff and systems. Its Mashup Studio showroom provides life-size
development of acute-care
simulations of operating rooms using 3D graphics and AR technology. Rather
hospitals and long-term care
than merely simulating the design and arrangement of equipment within the facilities such as elderly-only
theater, the company can make proposals about functions needed in the design housing and day service centers.
using an ICT browsing system, thereby making it easier to achieve efficient
circulation within the theater, optimal placement of equipment, and data transfer. Catalyst
The 3D simulation-based design system is also used for optimal placement and
We identify three catalysts: (1)
efficient floor planning in ICU and HCU areas as well as operating rooms. greater appetite for capex by
Total pack produce (TPP) business sees growth amid moves to divide medical institutions to establish a
hospitals along functional lines competitive advantage; (2)
The TPP segment accounted for 23% of sales and 56% of operating profits at growth at the life care segment
Ship Healthcare Holdings in 18/3, and we expect it to continue generating from rising demand for elderly-
sustained growth, boosted by the MHLW’s plans to divide hospitals along only housing; and (3) efforts to
functional lines. The company’s customers are major hospitals providing acute incubate and foster overseas
care and high-level acute care, and it has a lead in installing cutting-edge businesses.
operating theaters and ICUs and networking hospital information systems when
these hospitals undergo refurbishment. We also expect progress with the Research analysts
creation of systems to allow data sharing outside medical institutions as part of
Japan pharmaceuticals & healthcare
regional partnerships.
Kyoichiro Shigemura - NSC
Cons
Currency: JPY 18/3 19/3E 20/3E 21/3E
+81 3 6703 1118
Sales (mn) 425,566 444,600 465,900 491,700
Rec profits (mn) 18,259 18,800 21,200 23,700
EPS 204.6 232.6 261.1 290.7
P/E (x) 20.6 18.1 16.2 14.5
EV/EBITDA (x) 8.8 8.0 6.9 5.9
P/B (x) 2.1 2.0 1.8 1.7
Dividend yield (%) 1.5 1.7 1.9 2.1
Nomura | Ship Healthcare Holdings 14 June 2018
Key data on Ship Healthcare Holdings

Stock Buy (JPY) 18/3 19/3E 20/3E 21/3E
EPS 204.6 232.6 261.1 290.7
BPS or NAV per share 1,973.9 2,135.4 2,317.3 2,518.8
DPS 64.0 71.0 80.0 89.0
ROE (%) 10.8 11.3 11.7 12.0
Income statement
(JPYmn) 18/3 19/3E 20/3E 21/3E
Sales 425,566 444,600 465,900 491,700
Operating profits 18,259 18,800 21,200 23,700
EBITDA 22,794 23,335 25,735 28,235
Recurring profits 18,935 19,550 21,950 24,450
Pretax profits 17,413 19,550 21,950 24,450
Minority interest 138 160 180 200
10,350 11,770 13,210 14,710
34 40 40 40
affiliates)
Balance sheet
Performance
(JPYmn) 18/3 19/3E 20/3E 21/3E
Absolute 12.5 12.8 29.8
Operating receivables 102,517 103,700 108,700 114,700
13.0 9.1 18.7 Inventories 14,950 14,800 15,500 16,400
Large Cap
Long-term assets 91,950 92,741 93,341 93,841
Total assets 285,438 299,160 314,660 332,660
Operating payables
110,502 118,600 124,200 131,100
Current stock price (JPY) 4,220 Interest-bearing debt 44,411 41,735 40,735 39,735
Total liabilities 183,082 188,635 194,935 202,735
Market capitalization (JPY bn) 214.5
Net assets 102,354 110,525 119,725 129,925
Cash flow statement
(JPYmn) 18/3 19/3E 20/3E 21/3E
Operating cash flow 20,204 21,121 16,924 18,424
10,350 11,770 13,210 14,710
owners of parent
Depreciation 2,514 2,514 2,514 2,514
Change in working capital 1,950 7,065 -100 0
Capex -6,371 -4,000 -4,000 -4,000
Free cash flow 13,564 17,750 13,710 15,310
Financial cash flow -3,347 -6,274 -5,010 -5,510
1,495 -2,676 -1,000 -1,000
debt
Dividend payment -3,035 -3,238 -3,593 -4,048
Change in cash &
10,126 11,550 8,698 9,808
equivalents
110
Nomura | Ship Healthcare Holdings 14 June 2018
We use the Russell/Nomura Large Cap Index (ex financials) as our benchmark as
comparisons with the healthcare sector are difficult owing to the distinctiveness of the
company’s business model, which includes hospital remodeling for example, even
relative to other healthcare services providers. We use a fair-value P/E of 21x, higher
than the benchmark average of 15x on 19/3 forecasts, as our CAGR forecast for profits
attributable to owners of the parent of 13% through 20/3 is higher than the benchmark
figure of 5%, and applying this to our 19/3 EPS forecast of ¥233 yields a target price of
¥4,900.
Risks to our view
Potential risk factors include a worsening of Ship Healthcare Holdings' earnings as a
result of cuts in medical service fee reimbursements or other factors that would
undermine the operating environment for medical institutions, and a reduced appetite for
capital expenditure on medical equipment replacement. Another potential risk is delays
in handovers of TPP segment projects.
111
M3 2413.T 2413 JP
Leading the shift to ICT Global Markets Research

14 June 2018
M3.com is a starting point for communication
Rating
between physicians, companies and patients Remains Buy
Leading the shift to ICT starting with m3.com medical platform Target price
Remains JPY 5,500
M3 is shifting to an internet-based model for medical-related procedural work that
was previously carried out with the involvement of people, using its m3.com Closing price
website for people working in the medical sector as a platform. The moves that 11 June 2018 JPY 4,590
the company is taking based on its platform are producing three growth patterns.
The first is existing procedures in the medical-related field being moved online at
Potential upside +19.8%
the MR-kun business, which provides MR-related business using the platform,
and the research business, which carries out questionnaire surveys of physicians Anchor themes
about prescriptions. The second is adding internet-based operations to real world We think pharmaceutical
businesses. This includes using operatives and the internet to recruit patients in companies have a growing
trial procedures and for monitoring and data analysis, as well as the matching incentive to step up online
business for physician recruitment services using the internet. The third is information provision to
advanced medicine. M3 invests in venture companies, supporting the physicians as an effective sales
development of advanced medical equipment and pharmaceuticals, provides promotion tool. We see growing
support for pharmaceutical regulatory procedures, and aims to achieve market demand for businesses that offer
penetration quickly after a product is launched by gaining the attention of online communications with
physicians that are members of m3.com. pharmaceutical companies and
Focus point for healthcare x ICT: at present, all healthcare x ICT leads to research into physician
m3.com prescriptions.
m3.com is a starting point for communication between physicians/medical
institutions and pharmaceutical/medical equipment companies, and with patients Catalyst
in the BtoC field. Excluding parts that are directly related to long-term care and Potential catalysts include: (1)
community-based healthcare, we think much of the shift to ICT for procedures growth in new businesses,
related to healthcare can be carried out via m3.com. including Mebix and clinical trials,
Focus on measures for new value creation: advanced medical equipment and in the US business, in
development, cancer patient support addition to expansion of the MR-
We expect ongoing growth in MR-kun and other areas where M3 is putting kun business; (2) expansion of
conventional businesses online, and in the clinical trial and career businesses, research operations on a global
scale; and (3) new M&A deals.
where it is adding internet-based operations to real world businesses, as the
company works to change the existing healthcare industry. It is also adding value
to its business in the form of creating new healthcare (advanced devices and Research analysts
services). At the seeds rocket business, development is under way on organ
patching products as a follow-up to artificial dura mater. The company’s focus is
on progress with initiatives to create new corporate value, such as the Kyoichiro Shigemura - NSC
development of insurance products that change patient behavior, eg, cancer kyoichiro.shigemura@nomura.com
+81 3 6703 1118
genome testing and the Multi Opinion Service.
Cons
Currency: JPY 18/3 19/3E 20/3E 21/3E
Sales (mn) 94,471 115,600 139,400 165,900

Rec profits (mn) 29,713 35,200 41,800 52,500
EPS 60.8 66.1 82.5 105.4
P/E (x) 75.5 69.4 55.6 43.6
EV/EBITDA (x) 47.5 40.4 33.5 26.2
P/B (x) 18.1 14.9 11.7 9.2
Dividend yield (%) 0.2 0.0 0.0 0.0
Nomura | M3 14 June 2018
Key data on M3
Stock Buy (JPY) 18/3 19/3E 20/3E 21/3E
EPS 60.8 66.1 82.5 105.4
BPS or NAV per share 253.9 308.5 391.0 496.3
DPS 11.0 0.0 0.0 0.0
ROE (%) 26.3 23.5 23.6 23.7
Income statement
(JPYmn) 18/3 19/3E 20/3E 21/3E
Sales 94,471 115,600 139,400 165,900
EBITDA 30,874 36,000 42,600 53,300
Recurring profits - - - -
Pretax profits 29,700 35,220 41,820 52,520
Minority interest 1,200 2,200 2,300 2,400
19,684 21,420 26,720 34,120
30 100 200 300
affiliates)
Balance sheet
Performance
(JPYmn) 18/3 19/3E 20/3E 21/3E
Absolute 4.4 1.8 48.3
4.9 -2.0 37.2 Inventories - - - -
Large Cap
Long-term assets 62,845 62,800 64,090 65,480
Total assets 116,441 133,810 168,030 209,350
Operating payables
12,631 15,460 18,640 22,180
Current stock price (JPY) 4,590 Interest-bearing debt 0 0 0 0
Market capitalization (JPY bn) 1,486.7
Net assets 85,167 102,810 129,730 164,050
Cash flow statement
(JPYmn) 18/3 19/3E 20/3E 21/3E
19,684 21,420 26,720 34,120
owners of parent
Depreciation 1,161 800 800 800
Change in working capital -3,465 -2,359 -2,550 -2,710
Capex -1,385 -1,000 -1,000 -1,000
Free cash flow 8,632 14,651 25,900 32,280
Financial cash flow -4,761 -3,563 0 0
0 0 0 0
debt
Dividend payment -3,238 -3,563 0 0
Change in cash &
3,636 11,088 25,900 32,280
equivalents
113
Nomura | M3 14 June 2018
We obtain our target price of ¥5,500 via an 11-year DCF model through 29/3 that
assumes WACC of 5.4% and terminal growth of 0%.
Risks to our view
Major downside risks to our target price include (1) failure to secure the necessary
human resources, (2) slower-than-expected development of clinical trial, CSO, and other
businesses, (3) declining sales in the MR-kun business due to changes in sales
promotion strategies at pharmaceutical companies and other factors, (4) higher costs at
clinical trial-related businesses due to delays in recruiting patients and extended trial
monitoring periods, and (5) slower-than-expected business expansion due to regulatory
conditions in new overseas markets.
114
Secom 9735.T 9735 JP
EQUITY: JAPAN SERVICES
Major provider of security services Global Markets Research

14 June 2018
Secom has carried out advanced initiatives to create
Rating
networks in the medical and healthcare fields Remains Buy
Major provider of security services, aspires to the Social System Industry Target price
Remains JPY 10,000
and has carried out advanced initiatives to create networks in the medical
and healthcare fields Closing price
11 June 2018 JPY 8,262
The core business of Secom is security services centered on electronic security
services. The corporate vision is to leverage security technology to build a society Potential upside +21%
responsive to the super-aged society, and disasters/BCPs/the environment
(Secom calls this vision the Social System Industry). The leveraging of security
technology to build medical, nursing, and long-term care systems is a vital Anchor themes
initiative for Secom, and leading-edge ICT undertakings in healthcare are being In the electronic security systems
advanced. Chiefly, subsidiary Secom Medical System has been building home- field in Japan, we are focusing on
based medical systems and networks for medical institutions. efforts to secure new contracts
and lower the cancellation rate,
Focus point for healthcare x ICT: healthcare ICT is handled by Secom
such as the launch of improved
Medical System, medical institution related crime-prevention products and
For medical institutions, the company has installed cloud-based EHR systems at services and moves to improve
small hospitals and clinics without beds. It also operates Hospinet, which provides communication with customers.
remote image diagnostics support for CT, MRI, and other test images. Both use We also see considerable scope
communications security developed from the company's security technology and for increased uptake of electronic
secure data centers. The hospital management information analysis system security services on overseas
SMASH provides material for consideration in areas where there is potential for markets.
collaboration with clinics in other communities and identifies challenges for
business based on bed occupancy together with income and expense analysis Catalyst
culled, for instance, from the number of patients admitted during the month, and We see as potential catalysts: (1)
not just diagnostic and treatment processes gained from patients released. the launch of new electronic
Secom Medical System healthcare x ICT initiatives: home-based medicine security services leading to
With the aim of prolonging the healthy lifespans of people in a super-aged society, higher contract prices and lower
cancellation rates; and (2) moves
the company operates Secom wellness services, which are long-term care
to strengthen overseas business
prevention and health services for members. Services are offered to the elderly for through M&A.
lifelong learning, exercise, and hobbies, and members can receive home-based
drug administration instruction and nursing while being monitored for health.
Among security services, the company provides the My Doctor Plus services for Research analysts
elderly Secom home security subscribers, which include emergency response
services and a health advice phone service. Users of My Doctor Plus carry a
special device that shows the user's location and sends a signal to the 24-hour Kyoichiro Shigemura - NSC
Secom control center in times of emergency. kyoichiro.shigemura@nomura.com
+81 3 6703 1118
Cons
Currency: JPY 18/3 19/3E 20/3E 21/3E
Sales (mn) 970,624 1,019,700 1,038,600 1,063,600

Rec profits (mn) 135,448 131,900 149,300 158,900
EPS 398.6 390.6 447.4 479.9
P/E (x) 20.7 21.2 18.5 17.2
EV/EBITDA (x) 8.6 8.4 7.5 6.9
P/B (x) 1.9 1.8 1.7 1.6
Dividend yield (%) 1.9 2.0 2.2 2.3
Nomura | Secom 14 June 2018
Key data on Secom

Stock Buy (JPY) 18/3 19/3E 20/3E 21/3E
EPS 398.6 390.6 447.4 479.9
BPS or NAV per share 4,364.6 4,600.0 4,884.1 5,181.9
DPS 155.0 165.0 179.0 192.0
ROE (%) 9.4 8.7 9.4 9.5
Income statement
(JPYmn) 18/3 19/3E 20/3E 21/3E
Sales 970,624 1,019,700 1,038,600 1,063,600
EBITDA 196,771 193,223 210,623 220,223
Interest & dividend income 1,620 1,700 1,730 1,770
Interest expense 1,210 1,220 1,260 1,260
Recurring profits 144,318 141,300 158,800 168,600
Pretax profits 144,245 141,300 158,800 168,600
Minority interest 11,755 12,255 12,755 13,255
86,993 85,245 97,645 104,745
6,398 6,720 6,840 7,000
affiliates)
Balance sheet
Performance
(JPYmn) 18/3 19/3E 20/3E 21/3E
(%) 1M 3M 12M Current assets 806,746 874,645 944,645 1,017,545
Absolute -0.3 8.1 -1.4
0.1 4.3 -12.5 Inventories 22,144 31,500 32,100 32,900
Large Cap
Long-term assets 913,522 927,900 938,600 950,000
Total assets 1,720,268 1,802,545 1,883,245 1,967,545
Operating payables
43,929 48,300 49,200 50,400
Current stock price (JPY) 8,262 Interest-bearing debt 77,230 79,000 82,100 83,200
Market capitalization (JPY bn) 1,927.4
Net assets 1,081,213 1,139,000 1,208,000 1,280,000
52-week low stock price (JPY) 7,435 Shareholders’ equity 952,623 1,004,000 1,066,000 1,131,000
Cash flow statement
(JPYmn) 18/3 19/3E 20/3E 21/3E
86,993 85,245 97,645 104,745
owners of parent
Depreciation 56,459 56,459 56,459 56,459
Change in working capital -10,982 -16,301 -2,300 -3,000
Capex -87,384 -54,700 -54,700 -54,700
Free cash flow 65,423 62,807 88,745 95,245
Financial cash flow -50,950 -33,464 -33,645 -39,745
-6,854 1,770 3,100 1,100
debt
Dividend payment -32,739 -33,830 -36,059 -39,058
Change in cash &
14,843 80,538 63,800 65,000
equivalents
116
Nomura | Secom 14 June 2018
Our ¥10,000 target price is derived from a DCF model based on a 9-year forecast period
through 27/3 and assumes a WACC of 6.0% and terminal growth of 0%.
Risks to our view
We identify the following as risks that could cause the share price to sharply undershoot
our target price: a deterioration in earnings owing to lower corporate demand for
electronic security services or increased pressure from customers to lower prices in the
event that security budgets are cut at Japanese companies due to an overall downturn in
earnings. Another risk we see is a potential decline in contract numbers due to the
closure of outlets at financial institutions and retailers.
117
118
119
120
Appendix A-1
Analyst Certification
Each research analyst identified herein certifies that all of the views expressed in this report by such analyst accurately reflect
his or her personal views about the subject securities and issuers. In addition, each research analyst identified in this report
hereby certifies that no part of his or her compensation was, is, or will be, directly or indirectly related to the specific
recommendations or views that he or she has expressed in this research report, nor is it tied to any specific investment banking
transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

The terms "Nomura" and "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiaries, including Nomura
Securities International, Inc. ('NSI') and Instinet, LLC('ILLC'), U. S. registered broker dealers and members of SIPC.
Materially mentioned issuers
Issuer Ticker Price Price date Stock rating Previous rating Date of change Sector rating
M3 2413 JP JPY 4,695 12-Jun-2018 Buy Neutral 24-Jan-2012 N/A
Ship Healthcare Holdings 3360 JP JPY 4,195 12-Jun-2018 Buy Not Rated 06-Jan-2009 N/A
Cyberdyne 7779 JP JPY 1,430 12-Jun-2018 Buy Not Rated 30-Apr-2014 N/A
Secom 9735 JP JPY 8,340 12-Jun-2018 Buy Not Rated 06-Jan-2009 N/A
Bangkok Dusit Medical
Services BDMS TB THB 25.50 12-Jun-2018 Buy Neutral 08-Mar-2018 N/A
Bumrungrad Hospital BH TB THB 191.50 12-Jun-2018 Buy Neutral 05-Mar-2018 N/A
Fortis Healthcare FORH IN INR 140 12-Jun-2018 Neutral Buy 29-Jun-2017 N/A
IHH Healthcare Bhd IHH MK MYR 6.10 12-Jun-2018 Buy Neutral 14-Jun-2018 N/A
Metro Pacific Investments MPI PM PHP 5.05 11-Jun-2018 Buy Not Rated 14-Feb-2017 N/A
Raffles Medical RFMD SP SGD 1.05 12-Jun-2018 Neutral Buy 27-Nov-2017 N/A
Siloam International
Hospitals SILO IJ IDR 6,225 08-Jun-2018 Buy Reduce 22-Nov-2017 N/A
Rating and target price changes

Issuer Ticker Old stock rating New stock rating Old target price New target price
IHH Healthcare Bhd IHH MK Neutral Buy MYR 6.20 MYR 7.10
Raffles Medical RFMD SP Neutral Neutral SGD 1.25 SGD 1.20
IHH Healthcare Bhd: Valuation Methodology We value the company on the sum of its parts: 1) the hospital business in
Singapore, Malaysia, Turkey and India at 18x FY19F EV/EBITDA; 2) IMU Health at 14x FY19F EV/EBITDA; 3) equity stakes in
healthcare companies at market value; 4) hospital projects in Greater China using DCF. Adding these parts derives our TP of
MYR7.10. The benchmark index for this stock is MSCI Malaysia.
IHH Healthcare Bhd: Risks that may impede the achievement of the target price Downside risks: 1) depreciation of the
Turkish Lira against the MYR; 2) change in the regulatory environment; 3) execution risk; and 4) a decline in medical tourists to
Singapore as the SGD strengthens against local currencies.
Raffles Medical: Valuation Methodology We use SOTP valuation for RFMD: 1) we value the company's core business, which
consists of Raffles Hospital and its clinics in Singapore, Shanghai and Hong Kong, at FY19F EV/EBITDA of 18x, in line with
regional peers; 2) we value the China hospital projects using a DCF approach, with a WACC of 7%. Adding these two parts, we
get a target price of SGD1.20. The benchmark index for this stock is the MSCI Singapore.
Raffles Medical: Risks that may impede the achievement of the target price Key upside risks: 1) Faster-than-expected
break-even of China projects; and 2) continued improvement in the Singapore economy. Key downside risks: 1) further decline
in medical tourists; and 2) delay in China projects.
121
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As at 31 March 2018.
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The distribution of all ratings published by Instinet, LLC Equity Research is as follows:
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investment banking services to 0% of companies with this rating within the previous 12 months.
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Definition of Nomura Group's equity research rating system and sectors

The rating system is a relative system, indicating expected performance against a specific benchmark identified for each indi vidual stock,
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STOCKS
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A Target Price, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part the analyst's
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by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
122
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Global Markets Research

Asia Pacific hospitals: Technology investments to drive growth

Hospitals investing in technology will 14 June 2018

EQUITY: HEALTH CARE & PHARMACEUTICALS

Technology investments to drive growth Global Markets Research

Fig. 1: Stocks for action Indonesia Consumer Related

The evolution of hospitals .......................................................................3

The evolution of hospitals

Fig. 2: Example of a pavilion hospital

Source: Nomura research

Next-generation hospitals – built round

Asian hospitals – behind the curve

Fig. 3: Valuation table

Technology to drive healthcare inflation

Studies show that technology is the biggest driver of costs

Fig. 5: Development of catheter-based products for coronary artery diseases

Source: Nomura research

Singapore – IHH hospitals have benefited from technology

Kidney and UTI

Benign lesion surgery (FRS)

Mounth Elizabeth Novena Mount Elizabeth Raffles

Bening lesions - FRS

Note: The surgeries are ordered in terms of revenue intensity

Technologies for improving patient care

Fig. 8: Major technologies being used to improve patient care

Telemedicine – improving convenience for patients

Fig. 9: An example of ‘Store-and-forward’ telemedicine

Source: Nomura research

Telemedicine – Three main categories

Benefits for patients include increased access, convenience

Telemedicine expected to be used to attract medical travellers

Thailand – BH and BDMS investing in telemedicine

Remote Patient Monitoring – tracking medical and vital signs

Fig. 10: Remote patient monitoring system

Source: IOT4Health, Nomura research

Use of RPM can increase healthcare access and lower costs

We see rising adoption of RPM improving patient outcomes

Patient adherence is the key to a successful RPM system

Use of RPM systems to further reduce patient’s length of stay

Wearable devices – real-time data for RPM and elderly care

Fig. 12: Major wearable healthcare devices

Wearable glucose monitor Pulse oximeter Blood pressure monitor

Source: Nomura research

Focus areas include chronic conditions and elderly care

Devices can reduce complications, improve quality of care

Challenges include privacy concerns, data accuracy and educating patients

Asia Pacific expected to drive growth over the next decade

Robotic surgery – a way to differentiate and attract patients

Fig. 13: Robotic surgery

Source: John Hopkins Hospital, Nomura research

Robotic surgery offers a number of advantages over traditional surgery

Intuitive Surgical’s da Vinci robots – the market leader

Fig. 14: Over 4,500 da Vinci robots installed globally

Source: Intuitive Surgical (Investor presentation), Nomura research

Fig. 15: Intuitive Surgical – Worldwide procedures

Number of procedures ('000s)

Source: Intuitive Surgical, Nomura research

Robotic surgery being used to differentiate from peers and

Fig. 16: Surgical robots – used in marketing campaigns by hospital operators

Source: Nomura research

3D printing – to become essential for complex cases

Fig. 17: 3D printed model of a heart

Source: Nomura research

【Phase 1】【Phase 2】【Phase 3】